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The Contents of Journal of International Arbitration, Volume 38, Issue 3 (June 2021)

Sun, 2021-06-13 01:40

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

Gary Born, Anneliese Day & Hafez Virjee, Remote Hearings (2020 Survey): A Spectrum of Preferences

A detailed survey of users’ experience of remote hearings shows that, as of July 2020, in-house and external counsel, and arbitrators and tribunal secretaries, were generally enthusiastic about fully remote hearings, but more nuanced when it came to breaking down their preferences according to the amount in dispute and the number of witnesses and experts to be examined: for short hearings and meetings, users will very likely prefer a videoconference over meeting in person or conducting the proceeding by telephone, whereas for merits hearings and hearings dealing with major procedural issues, preferences hinge primarily on the value of the case and secondly on the number of witnesses and experts to be examined. Where parties are in disagreement as to how to hold the hearing, tribunals are likely to factor into their decision any flexibility around the hearing dates, cost considerations and the number of time-zones that need to be accommodated.

The article also discusses the survey results relating to the benefits and challenges of fully remote hearings, the rate of objections to fully remote hearings and how tribunals dealt with them, and provides additional insight into the profile of fully remote hearings resulting from the pandemic.

 

Lucy Greenwood, The Canary Is Dead: Arbitration and Climate Change

As international lawyers, arbitration practitioners are at the forefront of global issues, yet in relation to climate change and its impact on our practices, we have been slow to act. This article considers the role that arbitration should play in determining climate change disputes and the role that arbitration practitioners could play in shaping and adapting international law to respond to the climate crisis. The pandemic has driven significant behavioural change in the arbitration community. Now is the time to reflect on our practices to ensure that arbitration remains relevant and fit for purpose in a world where climate change will impact every area of our lives.

 

Jacob Grierson, Thomas Granier & Sacha Karsenti, Is Arbitration Helping or Hindering the Protection of the Environment and Public Health?

On the occasion of the sixth edition of the Casablanca Arbitration Days, some leading arbitration practitioners from the Middle East and North Africa (MENA) region and further afield convened to discuss an important and topical issue: ‘is arbitration helping or hindering the protection of the environment and public health?’. This conference examined the various areas where arbitration and the protection of the environment and public health interface. First, from a substantive view point, it is clear that environmental issues have become prevalent in commercial arbitration and that the latter has proven to be well suited to resolve such issues. Secondly, while some steps have already been taken in this respect, the climate change crisis requires the international arbitration community to change its ways and arbitrate in a much more environmentally friendly way. Thirdly, amidst the progressive emergence of environmental issues in investment arbitration and the responses that have already been provided by investment treaty arbitral tribunals, numerous uncertainties remain in respect of the way in which environmental issues should be treated. There is no doubt that environmental issues will give rise to intense debates before investment tribunals (and courts) and in legal literature in the near future. Finally, in addition to the protection of the environment, the arbitration community has already begun addressing (and, we would submit, successfully so) the substantive and procedural issues related to the protection of public health, in particular as a result of the COVID-19 global pandemic. This article provides an account of what was said about these various topics during this edition of the Casablanca Arbitration Days.

 

Thomas Williams, Ahmed Durrani & Umang Singh, The Advance on Costs in Arbitration: Reimbursement of Substituted Payment

This article explores the issues arising from the refusal of a respondent to pay its share of the advance on costs in an arbitration, the claimant’s substituted payment in respect of it, and the claimant’s entitlement to immediate reimbursement by the respondent before the final award is rendered and costs are allocated. The article will discuss the position under various institutional rules and draw a comparative analysis between them. It will also explore the legal basis of a claim for reimbursement, consider the approach that arbitral tribunals should adopt when granting relief, and examine a recent partial award in a Doha-seated International Chamber of Commerce (ICC) arbitration which ordered the immediate reimbursement of a substituted payment of the advance on costs.

 

Charles Kimmins, Nigel Rawding, Luke Pearce & Olivia Valner, The Test for Apparent Bias and Arbitrators’ Duties of Disclosure Following Halliburton v. Chubb: Welcome Clarification, but Questions Remain

The UK Supreme Court handed down its judgment in Halliburton v. Chubb in November 2020. The case addressed the test for apparent bias and the issue of arbitrators’ duties of disclosure in English-seated arbitrations. The authors of this article represented the London Court of International Arbitration (LCIA) as interveners in the Supreme Court appeal.

This article explores the key points arising out of the judgment and takes stock of the current position under English law. The authors discuss certain issues that remain open following the judgment, including the relationship between the duties of disclosure and confidentiality. They explore the extent to which parties’ adoption of institutional rules can modify the English law position, and comment on the extent to which English law is now in line with that of other jurisdictions.

The article notes that Halliburton v. Chubb is one of a number of recent cases globally concerning the scope of arbitrators’ duties. It concludes that while the decision of the Supreme Court provides a welcome degree of clarity as to the English law position, and a necessary confirmation that the English courts take a robust approach to such issues, the judgment itself was necessarily confined to relatively narrow facts. As such, questions relating to arbitrators’ duties are likely to return to the spotlight in future cases, and English law is likely to continue to develop as the relevant principles are applied to different fact patterns and as new norms emerge amongst arbitrators.

 

Johannes Koepp & David Turner, A Massive Fire and a Mass of Confusion: Enka v. Chubb and the Need for a Fresh Approach to the Choice of Law Governing the Arbitration Agreement

The recent judgment of the Supreme Court of the United Kingdom in Enka v. Chubb has provided an answer, at least provisionally, to the thorny question of how the proper law of an arbitration agreement is to be determined under English law. The majority of the Supreme Court (in a 3–2 split) held that in the absence of an express or implied choice of law by the parties, the ‘default rule’ should be that the arbitration agreement is presumed to be governed by the law of the arbitral seat, as the law ‘most closely connected’ to the arbitration agreement. Yet the Supreme Court’s reasoning is not wholly satisfying, and the two dissenting judgments present powerful arguments for taking a contrary approach. This article proposes a means to sever this enduring Gordian knot: drawing from the in favorem validitatis principle applied by the Swiss, Dutch and Spanish legal systems in determining the substantive validity of an arbitration agreement, we suggest extending this principle to encompass questions of the scope of an arbitration agreement and arbitrability. Under this approach, instead of focusing on determining the proper law of the arbitration agreement, the courts need only ask themselves two questions: (i) does the claim in question fall within the scope of the arbitration agreement, as interpreted under any of the potentially applicable laws, and (ii) is it arbitrable under any of those laws?

 

Laura Yvonne Zielinski, Property Rights in Treaty Cases: Lessons for Investor-State Arbitration from Case A15 (II:A) of the Iran-United States Claims Tribunal

On 10 March 2020, the Iran-United States Claims Tribunal (IUSCT) rendered its partial award No. 604-A15 (II:A)/A26 (IV)/B43-FT in Case No. A15 (II:A), ordering the United States to pay Iran over USD 29 million in damages, including decades of interest, and to return several properties that had been frozen during the 1979 hostage crisis.

In deciding which properties had to be transferred by the United States to Iran, the Tribunal – having concluded that there are no public international law rules on property – struggled to identify the law applicable to property rights in the context of an inter-state arbitration based on a treaty.

While the majority applied international private law principles to determine the domestic law applicable to questions of ownership, several of the dissenting arbitrators expressed the view that the nature of the dispute, as a treaty case, required the exclusive application of public international law.

These two diverging approaches offer an interesting perspective on recent investor-state  decisions, which also present conflicting views on the role that should be attributed to domestic law in determining the contours of those property rights, which are the subject of treaty violations and the corresponding compensation of investors.

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Romanian and Moldovan Perspectives on Construction Disputes during COVID-19

Sun, 2021-06-13 01:23

This post is a non-exhaustive summary of an online ICC YAF conference organised on 27 May 2021 primarily for the benefit of the Romanian and Moldovan practitioners, but with the participation of international practitioners having a general interest in construction arbitration in Eastern Europe. The conference comprised two panel discussions, each one debating one of the topics described below.

 

The Impact of COVID on Construction Arbitration Disputes in Romania and Moldova

In 2020, the Romanian construction sector registered the highest growth rate among the 27 EU countries, being one of the only three EU countries to have experienced a positive growth rate. Of course this does not hold true to the entire sector: both Claudiu Țâmpău (Strabag), for Romania, and Serghei Covali (Covali Litigation & Arbitration), for Moldova, pointed out that while COVID impacted negatively civil engineering projects (like office buildings)), infrastructure projects, such as roads and highways actually benefitted from reduced traffic and easier-to-observe social distancing rules and progressed at a faster than usual rate (not yet reaching, however, such a speed as to have contractors benefit from bonuses for early completion!). Moreover, the construction sector in Moldova benefited from a “special treatment” from the authorities, for example, with foreign personnel of employers or contractors being allowed to cross the otherwise closed borders. Despite a rather positive picture of the sector, contractors did file preventively, notices to employers requesting extensions of time; if such requests will be accompanied by requests to additional costs is to be seen in the coming months.

 

Regulatory landscape

Crina Baltag (Stockholm University) introduced the recently passed Government Decision 298/2021 of 30 March 2021 which sets out the guiding principles of the forthcoming Land Planning, Urbanism and Construction Code (‘Civil Construction Code’). This will be Romania’s first Civil Construction Code and it is eagerly awaited by the industry as it aims at improving the coherence of the regulatory framework and reducing bureaucratic processes. Baltag then further explained that the Code aims at gathering all laws, regulations and rules which concern rural and urban planning, required documentation, authorisation requirements, and disputes administration in one document. The forward-looking character of the Civil Construction Code is further reflected in the Decision’s proposal to promote specialised judges who would decide upon disputes arising out of construction projects, in particular on matters concerning authorizations and permits by the relevant public authorities. An equivalent proposal would also benefit the Moldovan market which has a similarly dense legislative framework, but no project is in sight yet.

Elaborating on the Romanian legislative framework and the implementation of the FIDIC standard forms of contract in Romania, Țâmpău indicated that while a few private contracts are regulated by FIDIC, the vast majority of public contracts concerning infrastructure are regulated by standardised general and special conditions adopted by Government Decision 1/2018. Ioana Knoll-Tudor (Jeantet), the moderator of the event, clarified that Government Decision 1/2018 (mandatorily applicable to public contracts whose value is of at least EUR 5 million) brought about 2 main changes in the Romanian construction disputes landscape: first, Dispute Adjudication Boards were removed; second, the Decision introduced a compulsory jurisdiction clause which provides for arbitration before the Court of Arbitration attached to the Romanian Chamber of Commerce (therefore excluding the former ICC jurisdiction or any other arbitral institutions).

The Moldovan landscape has its own particularities: FIDIC Contracts are rarely, if ever, used outside public projects where the employer is always the State Road Administration, and the contractors are almost invariably foreign companies. In such contractual relationships, the FIDIC Pink Book 2006 – an adaptation of the red FIDIC 1999 standard forms, is the norm, with the parties always opting for ad hoc UNCITRAL arbitration.

 

Practical challenges contractors are likely to face due to COVID and contractual solutions

First, the contractor is likely to face difficulties in mobilizing personnel, or in obtaining materials due to lengths in the supply chains. Second, delays may be incurred due to repeated health & safety inspections by governmental agencies; third, laws restricting construction activities and works on the site may be enacted by national authorities. In practice, both Covali and Țămpău underlined that contractors in Romania & Republic of Moldova sent out notices to employers arguing force majeure and change in laws, but emphasized that for contracts signed after the start of the pandemic, the unpredictability character which is inherent in the definition of force majeure, fades and such arguments may be more difficult to sustain.

Baltag also noted, from an arbitrator’s perspective, that there have not been yet many construction disputes directly caused by COVID, and emphasized the importance of the domestic law applicable to the contract in terms of the remedies available: contractors who may not claim force majeure can deploy other concepts, such as frustration, which however under English case-law requires certain conditions to materialise, for example the frustration needs to span for a certain duration before it comes into effect.

 

Arbitrating construction disputes: best practices and tips

The panel’s concluding remarks focused on the actual resolution of disputes in the construction sector, underlining the fact since construction disputes are highly technical and require voluminous documentation, the virtual-hearings are not an ideal platform for advocacy and that the industry awaits a return to in-person hearings. Among the best practices recommended, maintaining detailed and up to date documentation, employing project managers and a thorough understanding of the domestic applicable law ranked high in the speakers’ views.

 

Expert Witnesses in International Arbitration

Construction disputes almost consistently raise technical engineering and programming issues, requiring detailed analysis of large volumes of data, for example progress reports, schedule programme updates and modelling, drawings etc. Consequently, expert witnesses – such as engineers, architects, surveyors, delay analysts, or accountants play a vital role in arbitration proceedings. Indeed, the Damages Awards in International Commercial Arbitration (2020) Study by PwC & Queen Mary University revealed that tribunals awarded on average 69% of the amount claimed where a claimant expert was engaged, but no respondent expert, whereas it awarded only 41% of the amount claimed when respondent defended the quantum claim by also engaging an expert. Therefore, understanding the regulatory framework and the practical considerations affecting the deployment of the experts is essential for counsel and arbitrators alike.

 

The use of expert witnesses in arbitration proceedings vs domestic courts

Drawing a comparison between the use of experts in arbitration versus domestic litigation, Luminița Popa (Suciu Popa, Member of the ICC Court) praised arbitration for its flexibility as compared to litigation. For instance, in Romanian courts (1) the court can only appoint an expert which is on a list held by the central bureau for judicial technical experts, and (2) the objectives and scope of the expert’s report are determined by the court. By contrast, arbitration allows greater flexibility for the parties not only in choosing their experts but also in giving them their instructions. Ana Sebov (PwC România), also noted that unlike in the national court system where experts rarely have the opportunity to present their reports, arbitral hearings allow for the assessment of facts and assumptions which may not be evident from the reports themselves.

More generally, the panel mentioned two documents, in which  both counsel and arbitrators may find guidance in this type of disputes: the ICC Commission Report on Construction Industry Arbitrations (2019), and the ICC Commission Report on Issues for Arbitrators to Consider Regarding Experts (2015).

 

Criteria for selecting an expert witness and guidelines

Alina Leoveanu (Mayer Brown) outlined the following non-exhaustive criteria when appointing an expert: (1) qualification and experience, (2) availability, (3) interpersonal skills, depending on his/her role and the need to participate in a joint expert meeting or to attend a hearing and, ideally, be familiar and comfortable with cross-examination, as well as (4) language requirements. Observing that arbitration rules contain few provisions regulating the conduct of expert witnesses and their testimonies, Leoveanu mentioned an array of guidelines on the use of expert evidence in international arbitration: the IBA Rules on the Taking of Evidence in International Arbitration (2020), the IBA Guidelines on Party Representation in International Arbitration (2013), the CIArb Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration (2007), the ICC Commission Report on Techniques for  Controlling Time and Costs in Arbitration (2018).

Notably, all of these documents mention the duties of independence and impartiality which expert witnesses have to observe and some also include the requirement that the expert witness report contain a statement of the expert’s independence from the parties, their legal advisers and the tribunal. In practice, however, it is one thing to include a statement of independence in a written report, and quite another to be perceived as such by the arbitral tribunal, especially since party appointed experts provide services for the client that retained them, being often referred to as “hired guns”.

One practical way for counsel to change this perception of partisanship and enhance the credibility of their expert is to have the expert proposed by the ICC International Centre for ADR under the ICC Expert Rules. Sebov corroborated these comments, explaining that one of the first considerations taken into account by experts when nominated by parties is to conduct a conflict check and verify that they are independent in a broad sense, by looking at the tribunal, the lawyers of the other side, as well as the expert retained by the opposing counsel.

 

The role of the arbitral tribunal in managing the process of production of evidence through expert witnesses

Moving further, Popa emphasized that the earlier an arbitral tribunal becomes involved in the process, the more efficient and qualitative this process becomes, since it may use a variety of tools: asking the parties’ experts to confer with each other and submit joint reports or identify the issues on which expert reports should focus. Such early involvement enhances the efficiency of the procedure as by the time of the oral hearings, the arbitral tribunal would have formed a clear view on the issues agreed-upon by the experts and examine only their most fundamental differences. Indeed, Sebov explained that while at first sight there may be little room for interpretation of certain binary and technical issues, in practice expert reports often advance diametrically opposed views. This can be explained by (1) the instructions received by counsel, (2) the valuation methodologies used (for quantum experts), and (3) other variables employed by the experts.

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Two Potential Pitfalls for Arbitration in Turkey Come to Light at the 16th ICC Turkey Arbitration Day

Sat, 2021-06-12 01:09

The 16th ICC Turkey Arbitration Day was held virtually on 17-18 March 2021 in four sessions (click here for the event booklet). The first session was reserved for discussion of the judiciary’s approach to arbitration in Turkey. In the second session, Alexander G. Fessas, the Secretary General of the ICC International Court of Arbitration, shared the latest ICC updates. Claudia Salomon, who has recently been recommended for election as President of the ICC International Court of Arbitration, shared her vision for ICC arbitration in the third session, and finally, the panellists discussed M&A disputes. This post engages with two discussions from the first session: (i) whether a Turkish broker may agree upon arbitration in an agreement it concludes on behalf of its non-Turkish principal and (ii) obtaining certificate of execution for international arbitral awards rendered in Turkey.

 

Does Turkish Law Allow Arbitration Agreements Concluded by a Turkish Broker on Behalf of Its Non-Turkish Principal?

As the first speaker, Judge Dr. Adem Aslan (member of 11th Civil Chamber of Turkish Court of Cassation, which deals mostly with commercial disputes and arbitration-related matters), started his speech by presenting some recent decisions. In the second part, he raised a legal discussion on the basis of Article 105/2 of the Turkish Commercial Code numbered 6102 (“TCC” – click here for the TCC).

This article provides that a broker of a principal may sue or may be sued in Turkey on behalf of its principal (as a representative only) and any contractual provision stating otherwise shall be null and void. This article is intended to prevent the misuse of jurisdiction clauses in standard terms and conditions used by international merchants and to grant foreign merchants the right to sue before Turkish courts. Considering this article, Judge Aslan questioned whether a Turkish broker of a non-Turkish principal may conclude a valid arbitration agreement on behalf of its principal.

Before he linked the matter to arbitration agreements, he referred to some decisions of the 11th Civil Chamber.1) Decisions (i) dated 22.06.2020, numbered 2019/3799E., 2020/3051K.; (ii) dated 25.02.2020, numbered 2019/8298E., 2020/2018K., (iii) dated 05.02.2020, numbered 2019/293E., 2020/953K. and (iv) dated 26.12.1964, numbered 2428/4446. jQuery('#footnote_plugin_tooltip_37630_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37630_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); These decisions were based on essentially the same contention: (i) Article 105/2 of the TCC provides for exclusive jurisdiction of Turkish courts for agreements concluded with the involvement of Turkish brokers of foreign principals, (ii) the agreement was concluded by a Turkish broker, (iii) the jurisdiction clause in favour of a non-Turkish court stipulated in the agreement is null and void as it is against the exclusive jurisdiction of Turkish courts and (iv) even though the claim is raised against the principal that is situated outside of Turkey (but addressed to the broker in Turkey).

The important question is whether this line of argumentation can be applied to arbitration clauses under similar circumstances. In other words, can disputes arising from agreements concluded through a Turkish broker of a non-Turkish principal be referred to arbitration or do they have to be resolved before Turkish courts on the basis of the latter’s exclusive jurisdiction?

This discussion is of great importance as brokers plays an important role in Turkish commercial activities. Particularly in maritime trade, almost all agreements (in the form of standard terms and conditions) are concluded through Turkish brokers and those agreements provide for arbitration – mostly – in a country other than Turkey.

Finally, Judge Aslan raised the following questions for further deliberation:

  1. Is it possible to stipulate arbitration with a seat outside of Turkey?
  2. Is it possible to stipulate arbitration with a seat in Turkey?
  3. As the broker itself will not be party to the arbitration agreement, is it still possible to sue the broker on behalf of the principal before Turkish courts?
  4. Is it possible to apply to Turkish courts although there is an arbitration agreement stipulating arbitration seated in Turkey?

While Judge Aslan did not answer three of these four questions, he then responded affirmatively to the second question. In my view, in doing so, he contradicted the Chamber’s above-mentioned position. If there is an exclusive jurisdiction in favour of Turkish courts, then the seat of the arbitration should not matter. If the seat of the arbitration has an effect on the jurisdiction of Turkish courts, then the courts’ jurisdiction cannot be exclusive. This contradiction reveals that the chamber does not interpret the exclusivity in Article 105/2 of the TCC in terms of the jurisdiction of the courts and arbitral tribunals, but mostly associates it with the place of the proceedings.

In addition to this flawed interpretation of exclusivity, the chamber should consider that exclusivity in jurisdiction should not be confused with arbitrability. Exclusive jurisdiction of state courts is not an obstacle for a valid arbitration agreement, provided that the subject matter is arbitrable. If the matter is arbitrable, parties should preserve their autonomy to agree upon arbitration, regardless of whether Turkish law provides for exclusive jurisdiction.

 

How Will an International Arbitration Award Rendered in Turkey be Executed in Turkey? 

The second speaker of the first session was Judge Nevzat Boztaş (President of 14th Civil Chamber of Istanbul Regional Court of Appeal). In answering the questions from the audience, Judge Boztaş expressed his views on the execution in Turkey of an international arbitral award rendered in Turkey.

There are two main pieces of legislation that regulate arbitration in Turkey: the International Arbitration Act no. 4686 (“IAA” – click here for the IAA) and the Civil Procedure Code no. 6100 (“CPC” – click here for the CPC). The distinction between international and domestic arbitration in Turkey is based on the existence of a foreign element. The IAA applies mainly to arbitrations in which there is a foreign element whereas the CPC applies to arbitrations without a foreign element.

Unlike the CPC, a party may not apply to execution offices directly for execution of an award rendered in accordance with the IAA. Pursuant to Article 15(B) of the IAA, a certificate of execution is required to execute an award through the execution offices (the problems to be mentioned here relates to cases where no annulment lawsuit was filed). This certificate is issued by the competent court. Except for an ex-officio examination on arbitrability and public order, the conditions for issuing this certificate are not regulated in any legislation. This lack of regulation creates important problems in practice, which were raised to Judge Boztaş. Unfortunately, his responses did not comfort the arbitration community in Turkey.

When an application is made to the competent court (which has to be an ex-parte application in my view), the court notifies the counter-party (the losing party in arbitration) to comment on the applicant’s (winning party in arbitration) request for the issuance of an execution certificate. As the IAA regulates international arbitration and, in most cases, one of the parties is situated outside of Turkey, the court has to notify the applicant’s request to the counter-party by applying international notification regulations. Usually, this procedure takes around six months. Once these notifications are completed, the parties will make written submissions and this will alter the conduct and nature of the proceedings. A mere request for the issuance of an execution certificate will become an ordinary lawsuit.

Once these complaints were raised, both of the judges opined that such way of action is necessary to grant the counter-party the right to be heard. They also stated that the decision of the local court would be subject to appeal as well, which might take an additional year.

In my view, the courts are over-cautious about the right to be heard in such applications. First of all, a certificate of execution can only be issued if the arbitration award becomes final, i.e. no annulment application is made (according to Article 15/A of the IAA, an annulment application will automatically suspend the execution of the arbitral award, unlike the CPC). If the losing party had had any concerns regarding arbitrability and/or public order, it had 30 days to file an annulment action on these grounds. Secondly, by granting the losing party an additional right to raise its arguments on arbitrability and public order to challenge the issuance of an execution certificate even after 30 days, the 30-days deadline for setting-aside the award will be de-facto extended. Thirdly, years of delay caused by the courts in the execution of the award to protect the losing party’s right to be heard, is actually a violation of the winning party’s right to fair trial. Lastly, the reasoning of the courts is against the nature of arbitration: parties to an arbitration aim to collect their receivables as soon as possible. Delay of execution with ungrounded procedural interpretations, and transformation of a request for an execution certificate to a case for “enforcement of awards”, is against that purpose.

Therefore, it is of utmost importance that local courts and the judges of higher instances change their stance as regards this practice. The provision in the IAA should be used as a tool by the courts to perform a limited review upon an ex-parte application in order to prevent execution of awards that are against public order and/or rendered in a non-arbitrable matter. Any interpretation beyond that will harm the arbitration practice in Turkey.

References[+]

↑1 Decisions (i) dated 22.06.2020, numbered 2019/3799E., 2020/3051K.; (ii) dated 25.02.2020, numbered 2019/8298E., 2020/2018K., (iii) dated 05.02.2020, numbered 2019/293E., 2020/953K. and (iv) dated 26.12.1964, numbered 2428/4446. function footnote_expand_reference_container_37630_30() { jQuery('#footnote_references_container_37630_30').show(); jQuery('#footnote_reference_container_collapse_button_37630_30').text('−'); } function footnote_collapse_reference_container_37630_30() { jQuery('#footnote_references_container_37630_30').hide(); jQuery('#footnote_reference_container_collapse_button_37630_30').text('+'); } function footnote_expand_collapse_reference_container_37630_30() { if (jQuery('#footnote_references_container_37630_30').is(':hidden')) { footnote_expand_reference_container_37630_30(); } else { footnote_collapse_reference_container_37630_30(); } } function footnote_moveToAnchor_37630_30(p_str_TargetID) { footnote_expand_reference_container_37630_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Legal Challenges that the ICC and SIAC May Face in Russia

Fri, 2021-06-11 01:08

The Russian 2016 Arbitration Reform (the “Reform”) was a game-changer for both arbitration practitioners and the arbitral institutions. One of the major implications of the Reform was that so-called “corporate” disputes (which definition covers a large number of post-M&A disputes, including those arising out of share purchase agreements and shareholders’ agreements) could now only be referred to arbitral institutions which obtained the status of “Permanent Arbitral Institution” (“PAI”) from the Russian Ministry of Justice.

 

The newcomers to Russia

For a number of years, PAI status was only held by Russian arbitral institutions. However, the situation seems to be improving gradually and in 2019, the Hong Kong International Arbitration Centre (HKIAC) and the Vienna International Arbitration Centre (VIAC) were the first foreign arbitral institutions to secure PAI licences in Russia.

This list has expanded just recently. On 18 May 2021, the Russian Ministry of Justice granted the status of PAI to the ICC International Court of Arbitration (ICC) and the Singapore International Arbitration Centre (SIAC). This is a major development for users of international arbitration in Russia who will now have access to three of the “top-five most preferred arbitral institutions” in the world, according to the respondents of the 2021 International Arbitration Survey prepared by Queen Mary University of London.

The status of PAI provides the ICC and SIAC with the possibility to administer institutional international arbitration proceedings (a) with the seat of arbitration in Russia; and (b) arising out of certain “corporate” disputes (in particular, out of share purchase agreements). Accordingly, a large portion of post-M&A disputes with Russian parties may now be referred to the ICC and SIAC without a risk of being declared unenforceable at a later stage.

 

Conflicting Russian arbitration laws

However, there is still an open question as to whether these institutions may administer disputes arising out of shareholders’ agreements with respect to Russian joint ventures (the “SHA”), which form another big slice of post-M&A disputes.

The confusion is caused primarily by the existing discrepancy between the provisions of the Russian Arbitrazh Procedure Code (the “APC”) and Federal Law No. 382-FZ dated 29 December 2015 “On Arbitration (Arbitration Proceedings) in Russia” (as amended) (the “Russian Arbitration Law”).

The earlier law, being the APC, provides that for an institution to administer disputes out of SHAs, (a) such institution would have to adopt special rules for the arbitration of corporate disputes (the “Special Rules”); and (b) the arbitration clause in the SHA would have to be signed by all shareholders and the Russian joint venture company itself. The amendments to the Russian Arbitration Law introduced in 2018 were aimed at elimination of such requirements. However, what these amendments led to in practice were two conflicting laws and uncertainty as to what rules shall prevail.

Theoretically, this conflict should not be an issue. The general Russian law rules of interpretation being applied, the provisions of the Russian Arbitration Law as the later and more specific law should prevail over the rules of the APC (under both Lex posterior derogat legi priori and Lex specialis derogat generali rules).

However, practitioners are still concerned about the risks which may arise if the Russian state courts resolve this conflict in favour of the APC. For existing arbitrations arising out of SHAs and administered by the ICC, SIAC, HKIAC or VIAC (none of which have adopted the Special Rules), if the APC requirements prevail, this may make it difficult to enforce awards in such arbitration proceedings in Russia.

To date, the Russian courts have not yet revealed their position on the issue. We have been able to identify only one judgment of a first instance court1) Judgment of the Arbitrazh Court of Murmansk Region in the case No. А42-574/2020 dated 5 November 2020. jQuery('#footnote_plugin_tooltip_37733_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37733_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); which has briefly touched upon this question.

In that case the court has rejected a challenge on alleged lack of jurisdiction, basing this inter alia on the fact that the arbitration clause was not signed by / did not apply to the shareholders of the Russian company (which is the abovementioned requirement (b) under the APC). Surprisingly, no reference was made in the decision to the Russian Arbitration Law, which eliminated the APC requirement.

It would be fair to say that the issue of conflict between the Russian arbitration provisions has not been the main concern in this case (the position of the first instance court on the issue has not even found its way into the resolution of the appeal court which has upheld this judgment) and therefore it is far too early to draw any conclusions. However, this judgment should be sufficient to confirm that the existing concerns of practitioners are more than just theoretical.

 

Clarifications from the Russian Ministry of Justice

The Russian Ministry of Justice has tried to address these concerns, publishing in February 2020 clarifications on the application of Russian arbitration legislation in response to the joint request of the HKIAC and VIAC (the “Clarifications”).

In these Clarifications, the Ministry of Justice has confirmed that the provisions of the Russian Arbitration Law have priority over the earlier rules of the APC. According to the Ministry’s logic, the ICC, SIAC, HKIAC and IAC should generally be eligible to consider corporate disputes out of SHAs, notwithstanding the absence of the Special Rules and even if the arbitration clause in the SHA is signed only by the parties to the SHA (and not the related Russian company – a target of the SHA).

At the same time, the Ministry clarified that corporate disputes relating to the appointment, election, termination, suspension and liability of a Russian company’s management can only be resolved by a PAI which has adopted the Special Rules. Given that such management-related issues can be closely connected with other disputes arising under SHAs, it is not clear how the Ministry’s position regarding SHAs may be implemented in practice.

Furthermore, the Clarifications stated clearly that they are not legally binding, which means that the Russian courts may adopt different approaches to the issues raised. The judgment of the first instance Russian court referred to above was issued after the Clarifications and is therefore strong evidence that the risk of conflicting views cannot be excluded.

In that context, it seems that the right of newcomers to Russia, being the ICC and SIAC (and also the HKIAC and VIAC), to consider disputes out of SHAs relating to Russian companies will largely depend on the direction which Russian court practice will take and, in particular, on whether the Russian courts will consistently take into account the conclusions of the Clarifications.

References[+]

↑1 Judgment of the Arbitrazh Court of Murmansk Region in the case No. А42-574/2020 dated 5 November 2020. function footnote_expand_reference_container_37733_30() { jQuery('#footnote_references_container_37733_30').show(); jQuery('#footnote_reference_container_collapse_button_37733_30').text('−'); } function footnote_collapse_reference_container_37733_30() { jQuery('#footnote_references_container_37733_30').hide(); jQuery('#footnote_reference_container_collapse_button_37733_30').text('+'); } function footnote_expand_collapse_reference_container_37733_30() { if (jQuery('#footnote_references_container_37733_30').is(':hidden')) { footnote_expand_reference_container_37733_30(); } else { footnote_collapse_reference_container_37733_30(); } } function footnote_moveToAnchor_37733_30(p_str_TargetID) { footnote_expand_reference_container_37733_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Shipping Casualties and Arbitration: Reflections on the “EVER GIVEN”

Thu, 2021-06-10 01:15

The grounding of the container carrier “EVER GIVEN” in the Suez Canal in March 2021 has been dubbed by some as “shipping’s 15 minutes of fame”. This post hitches its star to that wagon and considers the contracts, claims and dispute resolution clauses likely to be affected by this casualty.

 

The Casualty, Salvage and Re-floating

The Evergreen-operated vessel is reported to have been carrying 18,300 containers out of a total theoretical capacity of 20,124 TEU.  After unsuccessful attempts to re-float using local tugs and excavators, the owners (or perhaps demise charterers) engaged leading professional salvors, Boskalis-owned Smit.  It was reported in the maritime press that Smit had been engaged under Lloyd’s Open Form of Salvage Agreement (“LOF”), although the vessel’s owners denied that.

The salvage presented almost unique challenges, with the vessel wedged into opposite banks of the canal.  Once re-floated and finally freed of the bank, it was towed to the Great Bitter Lake for inspection.  There it and its cargo were seized by order of the Egyptian Court, against a demand by the Suez Canal Authority (“SCA”) for US$900 million, since reduced twice (so far): first to US$600 million and, more recently, to US$550 million (with a “deposit” of ‘only’ US$200 million demanded for the vessel’s release).

 

Contracts, Claims and Clauses

Looking at the “EVER GIVEN” alone, and so leaving aside the hundreds of other ships affected by its grounding, there is the potential for thousands of contracts to be affected by the casualty and its aftermath.  All these contracts will contain dispute resolution clauses.  In the shipping world, arbitration is the favoured choice of dispute resolution mechanism and so many – though not necessarily all – of these contracts will feature arbitration clauses.

 

Salvage

When a ship suffers a marine casualty and needs assistance to escape its clutches, an owner may engage a salvor.  Typical forms of salvage contract include LOF and three forms published by BIMCO.  An LOF contract is made with all owners of property endangered by the casualty, whereas the BIMCO contracts are made with the owner of the ship alone, who may look to recover some of the cost in general average (explained below).

Disappointingly for fans of Wilbur Smith’s Hungry as the Sea, salvage claims under LOF are not heard by grizzled master mariners sitting at Lloyd’s of London.  Agreement to LOF carries with it agreement to Lloyd’s Salvage Arbitration Clauses (“LSAC”).  This is a form of semi-managed arbitration, in which the arbitrator is picked by the administrator (the Council of Lloyd’s Salvage Branch), in rotation, from a panel of (nowadays) three senior barristers.  All property interests are entitled to be heard and it is common, though not invariable, for ship and cargo interests to be separately represented.

Unusually for English arbitrations (outside the commodities sphere), the LSAC provide for appeal to the appointed Lloyd’s appeal arbitrator.  Further appeal to the Court on points of law is not excluded, subject to the usual criteria under section 69 of the English Arbitration Act 1996.

The continuation of this arrangement – now over 100 years old – is under threat.  Lloyd’s is actively considering withdrawing its support for LOF.  If it does, it is unclear what – if anything – will replace it, or what the knock-on effects will be for the BIMCO contracts, whose arbitration clauses require the appointment of a single Lloyd’s arbitrator with appeal to the Lloyd’s appeal arbitrator.

 

General Average

General Average (“GA”) is likely to feature strongly in disputes arising out of the “EVER GIVEN” casualty.  GA is not itself a contract, but a species of entitlement grounded ultimately in the law of restitution (though, in English law at least, with a distinct historical development).  A party to the so-called “maritime adventure” – such as the owner of the ship, the cargo or the fuel – benefitting from a payment or a “sacrifice”, made at a time when the maritime adventure is in peril to free it from that peril, may become liable to contribute towards that payment or sacrifice.  The contribution is assessed according to the respective values of the various property at risk.

The mechanism for GA assessment typically agreed in contracts of carriage and charterparties (described below) is for the assessment to be governed by the York-Antwerp Rules (“YAR”) and carried out by an “average adjuster”.  The YAR are agreed internationally (though not at state level) and published through the Comité Maritime International.  They can be complicated to apply, but for present purposes only the actionable fault” defence in Rule D need be noted: where the casualty was caused by the claimant’s fault, and the claimant is or would be legally liable for it, then the GA claim must fail.  The defence does not work if the claimant would itself have a defence for (say) negligent navigation under the Hague Rules.

 

GA Security

The party liable to contribute in GA is the owner of the property at the time of the peril.  That simple statement masks a complex picture.  Since cargo ownership often changes during transit, it can be difficult to identify who owned it at the relevant time.  That difficulty is multiplied by the number of containers and sometimes by individual parcels of cargo within each container.

Shipowners nowadays look first to hull and machinery insurance to cover GA contributions.  Some hull policies now contain “GA absorption” clauses, by which insurers agree to pay the GA bill up to a certain limit.

If there is no such clause or the limit is reached (as seems likely in the case of the “EVER GIVEN”), then it will be necessary to collect GA security from the cargo interests and their insurers.  This is complex enough, given the number of containers and interests involved.  It may be harder still, if the cargo was owned by a small company in a jurisdiction where it is difficult, time-consuming or expensive to enforce a judgment or arbitration award, to secure payment.  To address these issues, a practice has evolved of shipowners obtaining GA security from both the cargo interests and their cargo insurers, both of which will answer – subject, of course, to any “Rule D” defence – to the assessment of GA.

GA security often contains court jurisdiction clauses.  This is not invariably the case; it can provide for arbitration.

 

The Contracts of Carriage

The bulk of the contracts immediately affected by the “EVER GIVEN” casualty (and other container carrier casualties) are contracts of carriage (typically, though not always, bills of lading) of the cargoes in the containers on board.  Some of those contracts may be with the vessel’s owner (or bareboat charterer, if the vessel is the subject of a demise charter).  However, a more common arrangement is for the shipper of the container to contract (on its own behalf or on behalf of the consignee) with whichever shipping line it booked with.

The contracts of carriage may also see the bulk of the claims.  Leaving aside the extravagant claims of the SCA, the principal claims arising from the casualty will be salvage and GA.  If salvage is claimed directly against the cargo owners, then it is at least possible that they will seek to recover that from the contractual carriers.  If salvage is claimed against the vessel’s owners (or bareboat charterer), then they can be expected to claim cargo’s “share” of salvage from the cargo owners in GA.  Any claims for cargo damage will also be brought in the first instance under the contracts of carriage.

Bills of lading commonly contain arbitration clauses.  Like some others, however, EVERGREEN’s standard form bill of lading contains a court jurisdiction clause in favour of London (for non-US trades) and the Southern District of New York for trades to or from the USA.  It also permits the carrier to sue before any other competent jurisdiction (no doubt to allow it to side-step any difficulties in enforcing a US or English judgment).

There is likely considerable factual overlap among the many claims that might be brought under contracts of carriage, so efficient case management would suggest that similar claims should be brought before the same forum.  Ordinarily, this is not a readily available option in arbitration, where consolidation and joinder – despite recent changes in at least two well-known institutions’ rules (the ICC and the LCIA) – remain challenging and relatively rare.  However, the most commonly used rules in international maritime arbitration are those of the London Maritime Arbitrators’ Association (“LMAA”)).  The LMAA Terms have long contained an equivalent to what is now Rule 17(b).  This allows tribunals to order “two or more arbitrations [that] appear to raise common issues of fact or law … [to] be conducted and … heard concurrently”.  This Rule is often used, for example, where there are concurrent charters of the same ship, often on back-to-back terms.  There is real potential for significant efficiency savings where the claims can be managed together.  There is equivalent provision in Section 2 of the Maritime Arbitration Rules of the New York Society of Maritime Arbitrators.

 

Slot Charters

For reasons of efficiency, most if not all container lines book capacity on each other’s ships.  They do so under vessel-sharing or slot-sharing arrangements, often using a species of time charterparty known as a “slot charter”.  The “owner” under a slot charter is typically a time charterer of the vessel.  The types of claim and dispute resolution provisions under slot charters are generally the same as under ‘normal’ time charters, considered next.  The exception is that slot charterers do not usually own the vessel’s bunkers (fuel).

 

Time Charter

The ship may be owned by a finance house through a special-purpose vehicle.  The ship’s operator will contract with the SPV (or the demise charterer, explained below) under a long-term time charterparty, often via an intermediate time charter.  The time charterer is responsible for the commercial management of the ship.

The time charterer typically owns the fuel that powers the ship.  To that extent, it may also be liable to contribute towards salvage or in GA.  Both the slot and the time charterers may well also be contractual carriers under the contracts of carriage.  Where this is so, they may face claims by cargo interests for an indemnity in respect of cargo’s GA or salvage contributions.  They may seek to pass both direct and indirect (i.e., via cargo) GA and salvage claims on to the party contracting as owner under the relevant charterparty.  Claims from cargo interests are often regulated under the so-called “Inter-Club Agreement” (“ICA”), a rough-and-ready division of liability often incorporated into time charterparties.

In addition, a grounding – or indeed any casualty causing delay to the voyage – is likely to give rise to a claim by the charterer that the ship is “off hire” under the relevant clause of the charterparty.  The dispute resolution provisions in charterparties tend to be arbitration clauses, often providing for arbitration under LMAA Terms.

 

Demise or Bareboat Charter

Often used as a financing instrument, a bareboat charterparty effectively hands all responsibility for the ship over to the charterer, who becomes its quasi-owner for most purposes.  It is a term of the frequently-used BARECON form of demise charter that the owner is not to contribute in GA and there is no such thing as “off hire” under a bareboat charter.  That usually precludes any dispute under the demise charter from a casualty like this, unless the vessel is so badly damaged as to bring the charterparty to an end.  Disputes are usually subject to arbitration.

 

Insurance

The insurance contracts potentially engaged by a casualty of this sort are also numerous.  The ship will have hull and machinery cover (insuring physical damage and risks, with cover for GA and salvage), P&I cover (insuring liabilities), freight demurrage and defence (legal expenses insurance) and loss of hire cover.  A time charterer of the vessel will almost certainly carry its own P&I and FD&D cover.  The cargo will typically be insured as well.  Cargo insurance policies almost invariably cover GA and salvage charges, but not always loss, damage or expense caused by delay.

Many marine insurance policies still contain court jurisdiction clauses.  However, the position is changing with P&I cover.  There is an increasing trend for coverage disputes to be subject to tiered dispute resolution clauses, with arbitration the final step.

Even if subject to arbitration, disputes between insurer and insured will not be determined concurrently with the shipping claims but in separate arbitrations.  The terms on which those are to be conducted, if not specified in the policy, often involve submission to institutional rules such as those of the ICC and LCIA.  As mentioned above, the new joinder and consolidation provisions of the ICC and LCIA Rules may prove useful in managing disputes arising from this casualty, although they remain less flexible than the LMAA equivalent.

 

Concluding Remarks

The “EVER GIVEN”, at the time of writing, is still detained in the Great Bitter Lake.  As time goes on, the likelihood grows that her detention will give rise to even more serious claims than the original grounding.  If, for example, its owners pay an extortionate sum for its release, they might seek to recover that in GA.  More prosaically, the longer the goods on board are delayed, the greater the risk of damage to perishable cargoes, to say nothing of other claims for losses caused by delay.

Shipping’s 15 minutes of fame may have a long tail in terms of the disputes that follow.

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The Abu Dhabi Court Considers Special Authority is Required to Conclude an Arbitration Agreement by Power of Attorney

Wed, 2021-06-09 01:21

The Abu Dhabi Court of Cassation in Case No. 922 of 2020 recently considered the requirements that must be satisfied to conclude an arbitration agreement by powers of attorney. The judgment is the latest in a line of authorities confirming that special requirements apply to the formation of arbitration agreements (a courtesy translation of the judgment is available here).

In summary, the Court of Cassation held that:

  • Whether a party has authority to conclude an arbitration agreement is a matter which the court rather than the tribunal is competent to determine.
  • An arbitration agreement is an “exceptional arrangement” as a form of waiver of the right to access courts. As such a party’s intention to arbitrate must be explicit and free from doubt.
  • A special, rather than a general power of attorney or authorization is required for an agent (such as a company director or general manager) to bind a company to an arbitration agreement. A lack of the requisite special authority will result in an arbitration agreement being void and unenforceable.

The decision indicates that some courts in the UAE continue to consider that an arbitration agreement is an exceptional arrangement that must be authorized in a special way. This is problematic because it is based on the notion that heightened requirements apply to the formation of arbitration agreements, including international ones, to ensure that parties are aware they are waiving their otherwise available access to judicial remedies in national courts. This view has, rightly, been rejected by the decisive weight of international authority. The notion that an agreement to arbitrate is an exceptional waiver of judicial remedies should be abandoned by national courts as it has no place in modern international commerce where arbitration is the natural mode of dispute resolution. Indeed, the New York Convention forbids the imposition of heightened requirements for arbitration agreements to be valid.

 

Background

The underlying dispute arose from a construction project. The main contractor subcontracted works under two subcontracts that were subject to arbitration agreements (“Subcontracts”).

The Subcontracts were signed by a representative of the subcontractors under a power of attorney dated 28 November 2012. The power of attorney did not grant the subcontractor’s representative express authority to conclude arbitration agreements. Instead, it provided that the subcontractor’s representative had full power to act on behalf of the subcontractor “without prejudice to Article 58 of the Civil Procedure Law etc.” Article 58(2) of the Civil Procedure Law provides that “[n]o admission or waiver of a right alleged or settlement or submission to arbitration etc. may be made without special authority.”

The subcontractor completed the works in July 2017 but remained unpaid by the main contractor. In May 2018, the subcontractor executed a new power of attorney which expressly confirmed that the authority of the subcontractor’s representative extended to “the power provided for in Article 58 concerning civil procedure”.

In 2019, the subcontractor commenced proceedings in the Court of First Instance against the main contractor. Following an expert’s decision in the subcontractor’s favour, the main contractor challenged the court’s jurisdiction to hear the case on the basis that the Subcontracts were subject to arbitration agreements. In February 2020, the Court of First Instance concluded that the dispute should be arbitrated. The subcontractor appealed to the Appeals Court which upheld the first instance decision in June 2020.

The subcontractor subsequently appealed to the Court of Cassation arguing that: (i) the arbitration agreements were void and unenforceable because the subcontractor’s representative did not have the requisite authority to agree to arbitration; and (ii) the contractor waived its right to invoke the arbitration agreements.

 

Decision of the Abu Dhabi Court of Cassation

The Court of Cassation overturned the Appeals Court’s decision, holding that the subcontractor’s representative lacked authority to bind the subcontractor to the arbitration agreements in the Subcontracts. The arbitration agreements were, therefore, null and void.

The Court of Cassation reasoned that arbitration is a waiver of the right to access national courts. As such, an arbitration agreement will only be valid if made by a person with authority to dispose of this right and any agreement to arbitrate that is concluded without such authority will be null and void.

The Court held that the original power of attorney did not grant the subcontractor’s representative authority to bind the subcontractor to arbitration because the authority granted to the subcontractor’s representative in the original power of attorney was “without prejudice to Article 58 of the Civil Procedure Law etc.” (Case No. 922 of 2020, at p. 3.) The Court considered that this meant that the power of attorney gave the subcontractor’s representative full authority to act for the subcontractor except the ability to conclude an arbitration agreement. In reaching this conclusion, the Court referred to the requirement in Article 58(2) that submission to arbitration may only be made with “special authority.” (Id. p. 2)

The Court also held that the subsequent power of attorney concluded in 2018 was incapable of ratifying the arbitration agreements in the Subcontracts. The Court reasoned that the subsequent power of attorney was only applicable to new contracts and did not apply retrospectively to the Subcontracts.

The Court justified this surprisingly narrow construction of the subcontractor’s powers of attorney by explaining that arbitration is an exceptional dispute resolution method:
“an arbitration agreement is an exceptional arrangement whereby its parties opt for arbitration rather than litigation before the ordinary courts of law. This exception may not be interpreted broadly or extracted through analogy and must be construed within the narrowest limits. Furthermore, the parties’ intent must be clear and explicit and free from ambiguity and doubt.” (Id. p.3)

Applying this approach, the Court of Cassation held that it could not be clearly established that the subcontractor’s representative that signed the two Subcontracts had authority to bind the subcontractor to arbitration. Accordingly, the Court reversed the decision of the Appeals Court and remanded the matter to the Court of First Instance to consider the merits of the dispute. Having determined that the arbitration agreement was null and void, the Court of Cassation did not consider whether the contractor had waived its right to arbitrate by litigating the dispute.

 

Implications

This judgment is the latest in a series of decisions in which UAE courts have (mistakenly) referred to arbitration, including international arbitration, as an “exceptional” means of dispute resolution to justify the imposition of special requirements to the formation of arbitration agreements.

In DCC Case No. 946/2018, the Dubai Court of Cassation concluded that arbitration is an “exceptional” means of dispute resolution requiring “special” authorization for any person other than the general manager to bind a company to arbitration. Similarly, in DCC Case No. 182/2018, the Dubai Court of Cassation held that “[t]he doctrine of apparent authority is inapplicable in the context of an agreement to arbitrate whose parties must verify each other’s capacity and competence to enter into such agreement which entails a waiver of filing the case to the courts, including related guarantees.” More recently, in DCC Case No. 990/2019, the Court of Cassation partially annulled an arbitral award on the basis that a party’s legal representatives were not authorized under a general power of attorney (pursuant to which they were acting) to agree to grant a sole arbitrator the authority to award legal costs. According to the Court, a party representative should be specifically authorized to empower an arbitral tribunal with the right to award legal costs. Another post on DCC Case No. 236/2020 previously highlighted a UAE court holding arbitration agreements as invalid when special authority has not been proven or when the arbitration agreement was not signed by specific persons.

This line of decisions stand in marked contrast to another body of authority, including DCC Case No. 547/2014 and DCC Case No 386/2015, where UAE courts appear to have relaxed the strict requirements for special powers of attorney. UAE courts have applied the doctrine of apparent authority or a presumption of validity to the formation of arbitration agreements in those cases. There remains some hope that other UAE courts will restrict this decision of the Court of Cassation to its particular facts, i.e., cases where an arbitration agreement is concluded by a power of attorney that is expressly stated to be “without prejudice to Article 58 of the Civil Procedure Law.”

There is no system of binding precedent in the UAE judicial system and the two approaches, one friendly, and one hostile, to arbitration are difficult to reconcile. The weight of international authority makes clear that the Court of Cassation’s decision is mistaken. For most commercial parties, arbitration is the natural and preferred mode, rather than an exceptional means, of international dispute resolution. International arbitration avoids jurisdictional uncertainties, enforcement difficulties and concerns about neutrality, speed, appropriate experience and expertise that are associated with proceedings in national courts. These, in themselves, are good reasons not to impose special requirements on arbitration agreements.

More fundamentally, the decision of the Court of Cassation is at odds with the pro-arbitration treatment of agreements to arbitrate under the New York Convention. Article II (l) of the New York Convention expressly requires each Contracting State to recognize an “agreement in writing” for parties to submit their disputes to arbitration. Courts and other authorities around the world have interpreted Article II, and parallel provisions of the UNCITRAL Model Law as prohibiting states, like the UAE, from imposing heightened or discriminatory requirements on international arbitration agreements. Put simply, the approach endorsed by the Court of Cassation wrongly singles out agreements to arbitrate for heightened requirements to be valid, which is inconsistent with the presumptive validity and enforceability of arbitration agreements under the New York Convention (see G. Born, International Commercial Arbitration 802 (3d ed. 2021)). The approach could potentially have more far-reaching consequences for the enforcement of arbitral awards in the UAE. Commercial parties can be expected to reconsider decisions to seat arbitrations in the UAE, in light of the uncertainties that arise as to the validity of such agreements.

It is unfortunate that Federal Law No. 6 of 2018 on Arbitration (“Federal Arbitration Law”) reinforced, rather than removed, the requirement of special authority to conclude an arbitration agreement. Article 4.1 of the Federal Arbitration Law provides that “[a]n Arbitration Agreement may only be concluded, on pain of nullity, by a natural person having the legal capacity to dispose of his rights or on behalf of a juridical person by a representative with specific authority to arbitrate” and Article 53.1(c) provides that an award can be set aside if “a person does not have the legal capacity to dispose of the disputed right under the law governing his capacity, as provided for in Article 4 of this Law.” The Court of Cassation did not expressly rely on these provisions, presumably because the arbitration agreement in issue was concluded prior to the entry of the Federal Arbitration Law. However, the existence of these provisions confirms that a special authority requirement to conclude an arbitration agreement is the law in the UAE (and emboldens UAE courts to issue judgments along these lines).

The Court of Cassation did not expressly consider the subcontractor’s second argument of waiver. However, the argument that a claimant has waived its right to arbitrate by seeking to resist court proceedings brought in breach of an arbitration agreement is similarly common in the UAE, and equally problematic in terms of compliance with the New York Convention. Waiver is not expressly identified in the New York Convention as a basis for denying effect to an otherwise valid arbitration agreement and the application of rigid rules of waiver or technical defaults is clearly inconsistent with the fundamental pro-enforcement treatment of arbitration agreements under the New York Convention.

 

Lessons For Foreign Parties Operating in the UAE

There are preemptive steps that parties can take to protect themselves from arguments that an arbitration agreement is void due to lack of authority. Foreign parties operating in the UAE commonly assume that a director, in particular a managing director or general manager, of a UAE company will have authority to enter into arbitration agreements on behalf of their company, or that general authority is sufficient. The Court of Cassation’s decision makes it clear that this assumption is mistaken and it remains essential for parties contemplating arbitration in the UAE to draft powers of attorney, and review other contractual documentation, carefully. Foreign investors are advised to review their company by-laws and shareholder resolutions carefully, and to check the authority of directors or general managers to enter into arbitration agreements on behalf of their company.

Ultimately, the key lesson to be learned for foreign investors dealing with Emirati companies, and negotiating arbitration agreements with a UAE seat, is to consider selecting the Dubai International Financial Centre (“DIFC”) or Abu-Dhabi Global Markets (“ADGM”) as the arbitral seat. Both the DIFC and ADGM have their own arbitration laws that do not have this specific authority requirement and any awards issued in the DIFC or ADGM would be fully insulated against the special authority issue that arose in this case. The DIFC Courts, in particular, have been robust in maintaining that they are not bound by the decisions of the onshore Dubai Courts, whether by common law principles of res judicata or by Art 5(A)(4) of the Dubai Judicial Authority Law, that have been obtained in proceedings brought in breach of arbitration agreements.

 

The authors wish to thank Rupert Reed QC of Serle Court Chambers and Thomas R. Snider, Partner and Head of Arbitration at Al Tamimi & Co. for their valuable comments on earlier drafts of this article.  All errors are those of the authors alone.

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Will London-Seated Arbitration Follow The English Courts’ Approach To Witness Statements?

Tue, 2021-06-08 01:24

This post considers Practice Direction 57AC (“PD57AC”), which changes the approach to witness evidence in the English Courts, and its potential impact on London-seated arbitration.

 

The New Approach to Witness Statements in English Litigation

On 6 April 2021, the English Business and Property Courts marked a significant change in the approach that lawyers, and witnesses, are to take to witness statements, as PD57AC came into effect.

Witness statements in the English Courts became the norm with the introduction of the Civil Procedure Rules (“CPR”) in 1999. The intention was to save time in Court and ensure that a witness’s evidence was not determined by their ability to recall the facts under the stress of being in Court. It was hoped that the evidence would be more accurate.1)The ICC commissioned a study by Dr Wade of the University of Warwick which published its findings in November 2020 (the “ICC Report”). The study found that biasing people in favour of a particular company and exposing them to suggestive post-event information affected their memory reports. This arguably militates against an approach whereby a witness is required to recount everything for the first time in cross-examination. jQuery('#footnote_plugin_tooltip_37597_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The outcome was that statements became (i) over-lawyered, (ii) a vehicle for submissions, whereby a witness would provide a commentary on a substantial number of key documents (often quoting those documents at length), and, as the years passed, (iii) longer and longer, and (iv) more and more expensive. As it was put by Sir Geoffrey Vos V-C:

[W]itness statements became gargantuan and costly, and did not stick to the main evidential points in issue, but began over time to range far and wide over the entire history of the relationship between the parties. They were drafted by lawyers and often moved miles away from the [precise words] of the witnesses.”

Cross-examination risked being a contest as to which witness could best remember the contents of their voluminous witness statement, with advocates regularly alighting upon a word the meaning of which the witness did not know.

PD57AC seeks to address these issues in relation to trial witness statements as follows:

  1. The purpose of a trial witness statement is to set out in writing the evidence in chief that a witness of fact would give if they were allowed to give oral evidence (para. 2.1).
  2. Trial witness statements are important in informing the parties and the Court of the evidence a party intends to rely on (para. 2.2).
  3. A trial witness statement must contain only (para. 3.1):
    • evidence as to matters of fact that need to be proved at trial by the evidence of witnesses in relation to one or more of the issues of fact to be decided; and
    • the evidence as to such matters that the witness would be asked by the relevant party to give, and the witness would be allowed to give, if they were called to give oral evidence at trial.
  4. A trial witness statement must set out only matters of fact of which the witness has personal knowledge that are relevant, and must identify by list what documents, if any, the witness has referred to for the purpose of providing the evidence in their trial witness statement (para. 3.2).
  5. The witness is not only required to provide the statement of truth but also required to sign a ‘confirmation of compliance’ making clear the understanding that the witness statement is only to contain matters of fact of which they have personal knowledge (para. 4.1).
  6. The legal representative also has to sign a ‘certificate of compliance’ with PD57AC (para. 4.3).
  7. The Court has the full range of sanctions if there is non-compliance, including a refusal of permission to rely on, or strike out part or all of, the witness statement (paras. 5.1-5.2).

PD57AC has led to a sea-change in the preparation of witness statements:

  1. Prior to PD57AC, lawyers could spend weeks, or sometimes months, meticulously reviewing disclosure and piecing together a narrative, often with an answer to perceived weaknesses. This could all precede the involvement of the witness. Following this process, the witness would review, (possibly) amend and sign.
  2. Following PD57AC, the process is far more witness-led; it starts with interviews and/or questionnaires with the witness, seeking to elicit “own words”, much like oral examination-in-chief.2)Those conducting such interviews could helpfully review Section V of the ICC Report which contains a number of measures that can be taken with a view to improving the accuracy of witness memory. jQuery('#footnote_plugin_tooltip_37597_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The lawyer’s job is now to bring those answers together into the witness’s own language, following which the draft goes back and forth between the witness and the lawyer numerous times until it is what the witness would say orally.
  3. As to content, whereas before the statement could be a behemoth covering every aspect of the case by reference to hundreds of pages of exhibits, it is now limited solely to what the witness wishes to contribute as factual evidence. In the Commercial Court, it should be no more than 30 pages in length.

In our view, this is a welcome change that seeks to ensure the Court will be provided with the best approximation of a witness’s evidence-in-chief to it being given orally. There will be less need for the Judge to decipher the witness’ true evidence from cross-examination. Early experience suggests it shortens witness statements and reduces the costs of drafting.

However, the old process of providing a narrative on the underlying documents may not be gone. This may now form part of a longer skeleton argument for use at trial, as is more appropriate for submissions, subject again to page limits (50 pages in the Commercial Court).

 

The Impact on International Arbitration

Until this recent development, the approach to witness statements in commercial litigation and arbitration in London has been much the same. The significant shift in the English Court’s approach begs the question of what will now happen in London-seated arbitration.

The interface between arbitration and litigation in London lies in applications to the curial English Courts under the Arbitration Act 1996. In that context, Baker J (who chaired the working group that led to PD57AC), had previously made statements seeking to limit over-lawyerly witness evidence in Orascom TMT Investments SARL v VEON Ltd [2018] EWHC 985 (Comm), §5 and Exportadora de Sal S.A de C.V v Corretaje Maritimo Sud-America no Inc. [2018] EWHC 224 (Comm), §25.

In terms of arbitration itself, the London Maritime Arbitrators Association (“LMAA”) has moved first and adopted a similar approach to PD57AC in Sch. 4, para. 2 of its 2021 Terms, applicable to arbitrations commenced after 1 May 2021.

Whilst other major London arbitral institutions confer powers on the tribunal to control witness evidence, there is, as yet, no real guidance on the correct approach to its content:

  1. The ICC Rules (2021), provide the tribunal with the power to limit the length and scope of written evidence in the Expedited Procedure Rules (Appendix VI, Art. 3(4)), and make a similar broad suggestion “so as to avoid repetition and maintain a focus on key issues” as a possible Case Management Technique (Appendix IV, para. (e)), but there is nothing which makes clear the correct approach to the preparation of such statements.
  2. The LCIA Rules (2020), provide the tribunal with powers to decide the manner, form and limit of such statements (Art. 20.4) but, again, there is no guidance as to the correct approach to their preparation more generally.
  3. The IBA Rules on the Taking of Evidence in International Arbitration (2020), Art. 4(5)(b) (which is unchanged from their 2010 iteration) states that a witness statement shall contain “a full and detailed description of the facts, and the source of the witness’s information as to those facts, sufficient to serve as that witness’s evidence in the matter in dispute. Documents on which the witness relies that have not already been submitted shall be provided.

On one view, that IBA Rules are an invitation to the fuller narrative statements away from which PD57AC is trying to steer. It has, however, been rightly acknowledged in this context that best practice already involves “adoption of the words actually used by the witness”, “[not] finessing evidence to express it in terms that fit neatly with a legal argument or concept”, “[confining] the statement to events of which the witness has direct knowledge” and “[not having] a witness comment on or explain every document in the case”.3)See A Guide to the IBA Rules on the Taking of Evidence in International Arbitration, Roman Khodykin and Carol Mulcahy, 2019, at 7.94 to 7.100. jQuery('#footnote_plugin_tooltip_37597_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Conclusion

PD57AC will have a big, and we think positive, impact on the approach to and contents of witness evidence in the English Courts. The LMAA has followed the Courts’ lead. It remains to be seen whether others follow suit. On the one hand, the consensual nature of arbitration might be used as the basis to say that the parties should be left to take their own course in relation to the presentation of their witness evidence. On the other hand, provisions akin to PD57AC would not look out of place amidst the increasing codification of the procedures in institutional rules.

Whilst there is already scope to take the same approach under the ICC and LCIA Rules, in our view those institutions should consider similar provisions to PD57AC being made explicit in their rules (even if they are less prescriptive), and the IBA might usefully consider similar guidance. The result would be that neither party would feel at a disadvantage if it did not provide its entire case, and argument, in its client’s witness statements. In our view, this would be a further positive step towards re-balancing the use of witness evidence in the London dispute resolution landscape.

References[+]

↑1 The ICC commissioned a study by Dr Wade of the University of Warwick which published its findings in November 2020 (the “ICC Report”). The study found that biasing people in favour of a particular company and exposing them to suggestive post-event information affected their memory reports. This arguably militates against an approach whereby a witness is required to recount everything for the first time in cross-examination. ↑2 Those conducting such interviews could helpfully review Section V of the ICC Report which contains a number of measures that can be taken with a view to improving the accuracy of witness memory. ↑3 See A Guide to the IBA Rules on the Taking of Evidence in International Arbitration, Roman Khodykin and Carol Mulcahy, 2019, at 7.94 to 7.100. function footnote_expand_reference_container_37597_30() { jQuery('#footnote_references_container_37597_30').show(); jQuery('#footnote_reference_container_collapse_button_37597_30').text('−'); } function footnote_collapse_reference_container_37597_30() { jQuery('#footnote_references_container_37597_30').hide(); jQuery('#footnote_reference_container_collapse_button_37597_30').text('+'); } function footnote_expand_collapse_reference_container_37597_30() { if (jQuery('#footnote_references_container_37597_30').is(':hidden')) { footnote_expand_reference_container_37597_30(); } else { footnote_collapse_reference_container_37597_30(); } } function footnote_moveToAnchor_37597_30(p_str_TargetID) { footnote_expand_reference_container_37597_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Often-Overlooked Value of African Seats for African-Chinese Disputes

Mon, 2021-06-07 01:48

On 12 March 2021, Fangda Partners, ASAFO & CO and Delos Dispute Resolution hosted an interactive roundtable on “The Often-Overlooked Value of African Seats for African-Chinese Disputes”. The panelists for the roundtable discussion were Tunde Fagbohunlu SAN , Julia (Zhang) Le Roux, Michael Tam, Olga Boltenko and Peter Po Kwong Yuen, and it was moderated by Andrew Skudder and Thomas Granier. With the steady increase of foreign investments in Africa, and the desire for African countries to achieve international recognition as prospective seats and venues for the resolution of international disputes, this event was timely and covered perspectives relevant to both investment arbitration and commercial arbitration. This post highlights the key takeaways from the roundtable discussion.

 

Nature of disputes between China and African States

 Tunde Fagbohunlu SAN, spoke about the growing involvement of Chinese firms in oil and gas exploration and production activities, as well as infrastructure projects for the construction of roads and bridges in Africa. From his experience, Chinese investors have a pragmatic approach to the resolution of disputes. Using the Mambilla Hydropower Project (potentially West Africa’s biggest hydro-power plant), as an example, he explained how the Chinese investors insisted that the dispute involving this project should be settled with the Nigerian Government, and how the Chinese export bank played a role in ensuring the dispute was settled. However, it has been reported, that Nigeria is facing a new ICC claim, for reneging on the settlement terms.

He highlighted that, although Nigeria has been a signatory to the ICSID Convention since the late 1960’s, only four claims have been brought against Nigeria. On the other hand, it is generally rare to see arbitrations initiated by State parties, since governments usually have other means of achieving their objectives in dispute scenarios, including through legislative change and regulatory measures. From his perspective, this fact suggests that Chinese parties would rather explore settlement, as well as that African States might prefer to resolve disputes through other means as mentioned above. This, however, has the potential to trigger stabilization claims from investors.

He however noted that there have been some recent contractual and investor-State arbitration claims filed against African States or companies. Examples are the claim filed by Chinese investors against Nigerian National Oil Company and the recent construction claim filed by a Chinese company against Ghana.

Finally, Tunde Fagbohunlu SAN noted that dispute resolution clauses between Chinese investors and African States may be different in contracts between private entities and public entities. In explaining this, he noted that Nigerian contracts with public entities, particularly production sharing contracts, tend to reflect standard format embodying the nature in which the Government would prefer disputes to be resolved (e.g., with the application of Nigerian law and with a Nigerian seat for the dispute). On the other hand, contracts with private entities reflect more pronounced freedom of contract, with the agreed terms being largely based on negotiating and bargaining strength of the parties.

He also noted that governments are now paying increasing attention to arbitration clauses and adopting policies to implement similar clauses across all sectors. This is where the input of local counsel or local co-counsel is needed, as they can assist Chinese investors in understanding attitudes and behaviors of the government.

Chinese investors and African host states are advised to conduct detailed negotiations to agree on a dispute resolution mechanism that considers the interests and approaches of both cultures to the resolution of disputes. From his understanding, governments should also try to be flexible to accommodate investors’ needs.

 

The importance of the arbitral seat and distinctive features that make specific seats fit for Chinese disputes

Julia (Zhang) Le Roux expressed that the judiciary has a huge role in encouraging arbitration, which would in return provide parties with the confidence needed to choose African seats. She noted that the constitutional court in South Africa and the International Arbitration Act 15 of 2017 recognize the role the judiciary plays in encouraging arbitration and spoke about the Johannesburg commercial court’s works to expedite arbitration matters. She also highlighted  that countries in Southern Africa are currently seeking to replicate international adjudicatory bodies like the Chinese International Commercial Court (which deals with China-related international disputes and was created to provide support for the Belt and Road Initiative), by working to harmonize their laws to encourage the use of African seats.

Michael Tam explained that Chinese investors usually inquire about the laws, culture, nature, and political environment of the host State, to ensure that its environment is suitable for their investments and that their investments will be protected. He further highlighted that this is important to Chinese investors because of sovereign risks insurance, such as expropriation or situations where a State’s local judiciary disputes an arbitral tribunal’s jurisdiction on the grounds that the dispute in question should be resolved by the local judiciary. He noted that insurers are usually reluctant to cover risks of this nature, and will usually argue that such risks are not covered under the insurance.

Olga Boltenko highlighted the dynamic nature of the South African and Nigerian environments, which allow for easy location of local co-counsel and arbitration practitioners. Transparency of legal systems, adoption of the UNCITRAL Model Law and ratification of international conventions, such as the ICSID Convention were also mentioned as key features that make specific seats attractive for Chinese investors.1)46 out of the 55 African States are parties to the ICSID Convention and 40 out of the 55 African states are parties to the New York Convention. jQuery('#footnote_plugin_tooltip_37588_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Tunde Fagbohunlu SAN emphasized the importance the seat plays in enforcing an arbitration agreement and/or award. From his experience, host States may renege on their obligations under clauses in a bid to bring more disputes before their local courts, and Chinese investors should be aware of this. However, States which are signatories to the New York Convention (NYC) have a treaty obligation to enforce arbitration agreements and awards, which allows for easier enforcement of assets in host States. He highlighted that in Nigeria, the Arbitration and Conciliation Act implements the NYC, thereby attracting investors to Nigeria as a seat and potential venue for arbitration proceedings.

While the resolution of disputes in developed seats and under international conventions has its obvious advantages, such as the attainment of an independent and fair resolution of the dispute, choosing African seats for the resolution of African disputes has its benefits. It allows for easy enforcement of the host State’s assets in situations where most of its assets are located in its local territories. Moreover, selecting an African seat might encourage arbitrators to develop a better understanding of the dispute, because the dispute is being resolved in the location where the subject matter was performed or is being performed, which has the potential to assist the arbitrators understand the often nuanced cultural aspect of the dispute. It also allows for easier and efficient collaboration between local and foreign counsel in representation of clients during the dispute resolution process either during negotiations or the arbitration proceedings.

More importantly, selecting African seats for the resolution of Africa-related disputes presents a unique opportunity to aid development of the host State’s international and arbitration laws. This will allow African courts, when determining arbitration-related applications, to analyze, examine and review their arbitration laws in relation to local and international aspects that the arbitration might raise. This has the potential to improve African States’ jurisprudence on international law and arbitration related matters, and provide opportunities to update arbitration laws in order to ensure that statutes are up-to-date with the constant developments in international arbitration.

 

What African States are currently doing to encourage Chinese investors to choose African seats

 Julia (Zhang) le Roux explained that through the China-Africa Joint Arbitration Centre (CAJAC), China and African countries are working on a practical and effective dispute resolution mechanism to cater to the wider jurisdiction in African States. She highlighted that most Chinese investors view Africa as a country rather than a contintent comprised of more than fifty distinct legal jursidictions, and as such, may not be aware of the various and distinct laws that apply to each African State. This is why there has been a co-operation between neighboring African States to divide Africa into regions with similar backgrounds and laws. Examples of these are North Africa, West Africa, East Africa, the OHADA and the SADC regions.

This division influenced the development of the CAJAC rules which seeks to cater to the regions in Africa, as well as to Chinese investors. The rules are  largely based on the Chinese Arbitration Rules, and allow for the parties to agree on (a) a full document only hearing,2)Article 5 of the CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); (b) the arbitration to be conducted in Chinese,3)Article 34 of the CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and (c) a short timeline for conclusion of the arbitration.4)Article 34 of te CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); These Rules can be adopted by Chinese investors and African parties for the resolution of their disputes.

While referring to African seats, Tunde Fagbohunlu SAN explained that Nigeria and South Africa complement each other and highlighted the sensitive nature of Nigerian judiciary to arbitration and that the Nigerian Arbitration and Conciliation Act reflects the UNCITRAL Model Law and NYC.

In addition, Andrew Skidder highlighted that (a) Mauritius is a stable and neutral seat for arbitration in Africa; (b) the judiciary is supportive without being intrusive; and (c) the LCIA-MIAC and PCA have offices in Mauritius. He further highlighted the quality of the local bar and practitioners, and that Mauritius allows foreign arbitration lawyers to practice without going through the local bar qualification and/or registration process.

Olga Boltenko stated that Hong Kong is one of the most advanced arbitration jurisdictions in the world: its laws reflect the UNCITRAL Arbitration Rules, the courts are arbitration-friendly, the practitioners pool is diverse, multiple languages are spoken – including African languages – and Hong Kong has a mutual agreement with China on enforcement of interim disputes.

Arbitral institutions in African jurisdictions have also played an important role by training legal practitioners on relevant factors to consider when drafting contracts and dispute resolution clauses.

 

Conclusion

This roundtable discussion highlighted the overlooked value of selecting African countries as the arbitration seat, particularly in relation to Africa-based projects. Although the discussion was focused on Chinese investors, the insights provided apply to all Africa-based investments. By raising awareness to the value of choosing seats in African jurisdictions, law practitioners and investors will undoubtedly improve African States’ prospects of becoming important arbitral seats.

References[+]

↑1 46 out of the 55 African States are parties to the ICSID Convention and 40 out of the 55 African states are parties to the New York Convention. ↑2 Article 5 of the CAJAC Rules. ↑3 Article 34 of the CAJAC Rules. ↑4 Article 34 of te CAJAC Rules. function footnote_expand_reference_container_37588_30() { jQuery('#footnote_references_container_37588_30').show(); jQuery('#footnote_reference_container_collapse_button_37588_30').text('−'); } function footnote_collapse_reference_container_37588_30() { jQuery('#footnote_references_container_37588_30').hide(); jQuery('#footnote_reference_container_collapse_button_37588_30').text('+'); } function footnote_expand_collapse_reference_container_37588_30() { if (jQuery('#footnote_references_container_37588_30').is(':hidden')) { footnote_expand_reference_container_37588_30(); } else { footnote_collapse_reference_container_37588_30(); } } function footnote_moveToAnchor_37588_30(p_str_TargetID) { footnote_expand_reference_container_37588_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Wolters Kluwer Vacancy for Freelance Subject Matter Experts

Sun, 2021-06-06 01:00

In the context of the development of KluwerArbitration, the world’s leading resource for international arbitration research, Wolters Kluwer is searching for several freelance subject matter experts (SMEs) to start work in July 2021. The appointments will be for approximately six months, on a full-time basis (forty hours per week).

Wolters Kluwer is developing a range of data driven solutions to aid users of KluwerArbitration to better find the content they are looking for. Artificial intelligence and machine learning tools, developed in collaboration with solution and content experts, are being used to locate, capture and control the required data. To ensure that this data is of the best possible quality, the SMEs will review the content and data in an enrichment portal, making corrections where necessary. Not only will this correct mistakes, but the system will learn to avoid them in the future. Ultimately, the data can be used by users of KluwerArbitration to deep dive specific content sets, based on topics, people, and other types of metadata.

The SMEs will liaise with the in-house arbitration content expert, but also with leading professionals in the field.

Skills required:

  • Keen interest and good knowledge of arbitration law and arbitration-related concepts and content
  • Eye for detail
  • Excellent / very good command of English
  • Working knowledge of other languages such as Spanish, French and/or German is a strong asset
  • Ability to use own initiative and efficient time management
  • Affinity with online tools

This is a unique opportunity to work with a leading publisher and expert editors, and to make an important contribution to a high-profile online project on arbitration law.

The candidate should be in a position to at least carry out the duties over the summer months of July, August and September 2021, although the project will continue beyond then.

For more information and applications e-mail: [email protected].

Applications by Friday, 18 June 2021. Please include a CV (max 2 A4) and a short letter of motivation (max 1 A4).

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Draft Bills on Registration Requirements for Arbitral Institutions: Is Ukraine Joining the Regional Trend?

Sat, 2021-06-05 01:20

Recent draft legislation submitted to the Ukrainian Parliament would introduce new regulations imposing stricter requirements for setting up domestic arbitral institutions (‘treteyskyi sud’) and, at the same time, introduce a framework for establishing new international arbitral institutions in Ukraine. This appears to be the latest legislative initiative in the line of recent reforms aimed at improving the arbitration landscape in Ukraine.

The proposal is somewhat reminiscent of the 2016 Russian arbitration reform that introduced licencing requirements for arbitral institutions, discussed on the Blog (e.g. here, here and here). It is also in line with similar trends forming in the former Soviet Union states. Unlike in Russia, the draft bills do not intend to impose any licensing requirements on foreign arbitral institutions that administer arbitrations with a Ukrainian seat.

 

What is Proposed?

Two legislative initiatives are pending before the Ukrainian Parliament:

Generally, domestic arbitral institutions in the Ukrainian system do not have jurisdiction to deal with disputes that involve a foreign party, whereas international arbitral institutions can deal with disputes that involve foreign parties or parties with foreign investment, etc.

The first bill proposes a new procedure for registration of domestic institutions. The draft states that the suggested amendments are motivated by a lack of trust in domestic institutions, which appears to be a problem similar to that faced in Russia and Latvia with “pocket arbitrations”. These “pocket arbitrations” are usually administered by an arbitral institution set up by one of the parties to an arbitration agreement, e.g. a bank setting up an institution to resolve disputes with its debtors.

Going forward, only non-profit organisations that have existed for over 5 years will be allowed to establish a domestic institution. Any application to set one up will be subject to review and recommendation by an industry self-regulatory organization. All currently existing domestic institutions must re-register to continue their activities. This tightens the requirements and should, presumably, limit the current number of institutions in the country and hopefully improve the quality and independence of domestic arbitral institutions.

The second bill, on the other hand, appears to be aimed at increasing the number of international arbitral institutions in Ukraine. The explanatory note explains that the changes are aimed at amending the legislation to develop alternative resolution of international commercial disputes and to improve investment climate in Ukraine.

Non-profit organisations registered in Ukraine for over 10 years or organisations registered abroad (with a branch in Ukraine) that are founders of international arbitral institutions abroad (functioning for over 5 years) will be allowed to register a new international arbitral institution in Ukraine. In contrast to the procedure for setting up a domestic institution, no prior opinion/recommendation by a governmental or industry body would be required.

 

What is the Added Value of Specific Rules for Registration of International Arbitral Institutions?

The two international institutions that exist in Ukraine are the International Commercial Arbitration Court (ICAC) (set up in 1992) and the Ukrainian Maritime Arbitration Commission (UMAC) (set up in 1994). Both are attached to the Ukrainian Chamber of Commerce and Industry.

These institutions are regulated by the International Commercial Arbitration Law (Arbitration Law). ICAC was set up already in 1992, before the Arbitration Law that regulates it was passed in 1994. Setting up arbitral institutions with no specific legislative regulation appears to therefore have not been an issue 29 years ago. The question remains why the legislator decided to introduce specific regulation.

One answer to that may be that by introducing a procedure, the legislator hopes to stimulate the establishment of additional international institutions. However, looking at the experiences of other arbitral institutions worldwide suggests that prescribing a specific registration process in the law is not necessary. Major arbitral institutions around the world are attached to chambers of commerce (e.g. ICC, VIAC) or exist within the available legislative framework for registration of legal persons in their jurisdictions, without a specific legal form for arbitral institutions: DIS is registered as a “eingetragener Verein” – a registered association; SIAC is a non-profit organisation; HKIAC is a company limited by guarantee and a non-profit organisation; LCIA is a private not-for-profit company, limited by guarantee.

But, of course, regional differences play an important role. The former Soviet Union and Ukraine-specific background will provide some context. The reality is that Ukraine as a jurisdiction has historically been very formalistic. Often, if a procedure is not specifically set out in the law in detail, it won’t be possible to accomplish something through recourse to the general rules. A good example of this was the problem with court ordered interim measures that arbitration in Ukraine faced for many years. The Arbitration Law set out a general power of the court to order interim measures, but no procedure was detailed for the same in the Ukrainian Code of Civil Procedure (UCCP). This led to reluctance of Ukrainian courts to grant interim measures despite having the power to do so. The problem was resolved through the 2017 arbitration reform, which added a procedure to the UCCP. From this perspective, it is understandable why a legislator that wants to expand the number of international institutions would be considering introducing a detailed registration procedure.

The more important question is, however, whether Ukraine needs more international arbitral institutions in the first place. Would more institutions be likely to achieve the stated goal of developing alternative resolution of international commercial disputes and improving investment climate in Ukraine?

The answer to that is probably “no” – more arbitral institutions are unlikely to bring about the improvement that the draft bill asserts to aim to address. What is likely to increase the attractiveness of Ukraine as a seat of arbitration is “‘[g]reater support for arbitration by local courts and judiciary’, ‘increased neutrality and impartiality of the local legal system’, and ‘better track record in enforcing agreements to arbitrate and arbitral awards’” (according to the 2021 Queen Mary International Arbitration Survey).

On this front, Ukraine has made encouraging steps forward through the 2017 arbitration reform, but a lot remains to be addressed. It may, therefore, be more useful to focus the legislator’s limited time and resources on the above aspects.

 

A Trend in the Former Soviet Union States

It looks like the former Soviet Union countries are going through similar cycles. First, regulation is introduced liberalising the regime for setting up arbitral institutions. Second, the number of established institutions (predominantly domestic) explodes, leads to “pocket arbitrations” and issues with fairness and neutrality. At the end of the cycle, regulations for establishing arbitral institutions are tightened.

Belarus, for example, appears to be at the second stage with a growing number of institutions, following liberalisation that took place in 2011. Russia, on the other hand, is at the end of that cycle and tightened its regulations in 2016 introducing mandatory licensing of arbitral institutions by the Ministry of Justice subject to recommendation of a government-established advisory council.

In this cycle, Ukraine itself appears to be somewhere in between – it is proposed that regulations are tightened for domestic institutions while establishment of more international institutions appears to be desirable to the legislator.

 

Will Foreign Arbitral Institutions Need to Get a License?

The Russian reform of 2016 contained a set of much discussed licensing requirements which affected not only institutions registered in Russia but also foreign arbitral institutions administering proceedings with a Russian seat. The Russian rules require foreign arbitral institutions to obtain a governmental license under the new procedure demonstrating that they have a “widely recognized international reputation”. This means considering, e.g. whether the institution is on the GAR Whitelist, number of arbitrations administered by the institution annually, variety of geographical origin of the parties, good track record for recognition and enforcement of the institution’s awards. The licence was obtained by, e.g. VIAC, HKIAC, and more recently ICC and SIAC.

Good news for foreign arbitral institutions is that Ukrainian legislative initiative does not go that far. Under the second draft bill pending before the Ukrainian Parliament, foreign arbitral institutions could still administer arbitrations seated in Ukraine with no requirement to set up a “local” international arbitral institution or receive certification in the country. The bill only addresses the formalities of registration of institutions that want to have a presence in Ukraine.

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Arbitration Reform Efforts: Are Reformers Wasting a ‘Once-in-a-Lifetime’ Opportunity?

Fri, 2021-06-04 01:07

The 18th Annual ITA-ASIL Conference, hosted virtually for a half-day on March 23, 2021, discussed ongoing efforts at ICSID and UNCITRAL Working Group III to reform investment arbitration.

José Alvarez (New York University School of Law) kicked off the conference by throwing down the gauntlet: procedural reform does not go far enough. In the long run, he argued, today’s ISDS reform efforts will not lead to the stable investment regime that reformers are seeking. The remaining speakers – one panel featured three arbitral institutions, UNCITRAL, ICSID and the ICC, and another featured chairs or advisors to national delegations to UNCITRAL Working Group III – largely defended the ongoing reform efforts.

Conference co-chairs Laurence Boisson de Chazournes (University of Geneva) and Patrick Pearsall (Allen & Overy) led the event, which featured as speakers Joseph Neuhaus (Sullivan & Cromwell), Catherine Amirfar (Debevoise & Plimpton), José Alvarez, Anna Joubin-Bret (UNCITRAL), Meg Kinnear (ICSID), Alexander Fessas (ICC), Colin Brown (EU delegation to UNCITRAL Working Group III), Makane Mbengue (University of Geneva), Ana María Ordoñez Puentes (Colombian delegation to UNCITRAL Working Group III), Jeremy Sharpe (US delegation to UNCITRAL Working Group III, speaking in his personal capacity) and Chiara Giorgetti (University of Richmond School of Law).

 

Alvarez: Current ISDS reform efforts will not lead to the stable investment regime that reformers are seeking

The debates about reforming ISDS began with two crises of legitimacy: Why do we have ISDS? And why is ISDS so lawless? Alvarez differentiated between the broad legitimacy crisis, which focuses on the very existence of investment treaties and their substantive provisions, and the reform efforts ongoing at ICSID, UNCTAD and UNCITRAL, which focus on how to make dispute settlement under investment treaties more subject to the rule of law.

On the one hand, scholars are questioning many fundamental premises of the ISDS regime – Do foreign investors really face an obsolescing bargain? Do they still face a liability of foreignness that requires protecting them from national courts? If investment treaties really attract foreign investment, why don’t CEOs venturing abroad or their political risk insurers think about them? Why do States need treaties to attract investments that make no contribution to economic development? Why should investment treaties go against basic concepts of private law such as national laws on corporations? Do we still believe that ISDS depoliticizes disputes?

On the other hand, the reform processes have zeroed in on one bugbear: dispute settlement procedure. Their agenda is concerned with issues such as long and expensive proceedings, non-diverse and biased arbitrators, inconsistent case law, and the lack of a mechanism to correct errors. Beyond the proposal to establish an assistance mechanism to level the playing field for richer and poorer States – easier said than done, said Alvarez – he noted that there are five possible directions for current ISDS reform efforts, none of which has the potential to displace existing ISDS:

  1. Replacement of ISDS provisions with non-binding dispute settlement or State-to-State dispute settlement, which would constitute a de facto return to national courts eg. Brazil’s Cooperation and Facilitation Agreements, US-Mexico-Canada Agreement (as applied to Canada), EU-China Investment Agreement, EU-UK Trade and Cooperation Agreement;
  2. Constrained ISDS, e.g., the US-Mexico-Canada Agreement (as applied to Mexico) and India Model BIT of 2016, which imposes a long exhaustion of remedies requirement;
  3. Reformed ISDS, e.g., the U.S. Model BIT of 2012, which includes an appellate mechanism, and Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which accepts certain State counterclaims;
  4. Judicialization, e.g., the European Union’s proposal for a multilateral investment court, which is included in the EU-Canada Comprehensive Economic and Trade Agreement, and the EU-Singapore and EU-Vietnam BITs (see here for Alvarez’s detailed critique); and
  5. All of the above. At UNCITRAL Working Group III, some argue that States should have maximum flexibility to match their investment treaties to a full menu of dispute settlement solutions, using the Mauritius Convention on Transparency as a model. For example, a State could decide to maintain a traditional formulation of the FET standard, but replace binding arbitration with nonbinding mediation.

Either these options will not appeal to States and foreign investors, or their piecemeal adoption will not form a serious threat to the existing network of IIAs and the claims that continue to be brought under traditional agreements. A multilateral investment court tasked with interpreting different treaties in different cases cannot be expected to harmonize its jurisprudence without running afoul of the Vienna Convention on the Law of Treaties, for example. The more likely result is an even more complex international investment regime, with diverse substantive standards and diverse procedures for adjudication. Such diversity will not produce the predictable, consistent and stable rules that the reformers are seeking.

Instead, reformers are letting a good crisis go to waste. By focusing only on fixing dispute settlement procedures, they ignore the larger critiques that are undermining confidence in the investment regime writ large. The regime is under attack because the expected benefits of international investment agreements have not materialized as clearly as have the massive claims and subsequent awards against States. Yet ISDS reformers (and their critics) tinker at the edges and dodge the core question: If the end is increasing needed capital flows to the developing world, does the investment regime live up to its promise of being the means?

 

Arbitral institutions: The reform processes are focused on delivering tangible solutions

Anna Joubin-Bret contested Alvarez’s claim that UNCITRAL Working Group III would contribute to further complexification of the investment regime. Instead, the goal of the Working Group’s efforts is to build a structure resembling a house (see figure 1). Investors can enter the house through their choice of door – State-to-State procedures, investment arbitration, a multilateral investment court, or domestic courts. Any dispute may go to a second level appellate mechanism, which constitutes the biggest change to the existing regime. Each ‘door’ will have a corresponding second level, for example, investment arbitrations will have access to a standing appellate body, whereas disputes that enter through the investment court will have access to a second-instance appellate tribunal. The roof of the building represents State control over the process – about 120 States participate in each session of the Working Group – along with their desire to ensure coherence among treaty interpretation tools and substantive standards, the latter of which Joubin-Bret acknowledged is an issue “for a later stage.” Finally, two annexes to the house represent efforts to support parties in disputes and strengthen ADR and investor-state mediation. Extending the metaphor, Joubin-Bret presented the internal ‘floor plan’ of the house as the suite of procedural provisions that States can select. The “delivery mechanism” will be a multilateral convention that sits on top of the web of existing investment treaties, drawing from the experience of the Mauritius Convention on Transparency and OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. This house, Joubin-Bret argued, is a coherent system that will ensure delivery of meaningful and long-lasting reform. Meg Kinnear argued that ICSID’s role is not to revise the substance of investment treaties, since ICSID is a procedural mechanism for facilitating dispute resolution. ICSID makes no apologies about focusing on procedural reform only. Its goal is to improve clarity, simplicity, and ease of use of dispute settlement procedures. She encouraged critics to view procedural and “architectural” reform as a step on the way to substantive reform, which may include paring back the treaties but may also include broadening them to include human rights or environmental obligations.

Figure 1: Slide from Joubin-Bret’s presentation on reform efforts at UNCITRAL Working Group III

 

Kinnear focused on tangible deliverables of the ICSID reform efforts. The current round of amendments to the ICSID Rules, which began in October 2016, was expected to have a final round of in-person consultations in March 2020 which were delayed by the COVID-19 pandemic. ICSID is keen to finalize the process and release the Revised Rules within the next year. The primary goal of the amendments is to shorten case times. Changes to the ICSID Additional Facility Rules will make the Additional Facility available when both disputants are not ICSID member states and will also allow regional economic integration organizations (REIOs) to act as disputants. Finally, ICSID and UNCITRAL released second version of the draft Code of Conduct for Adjudicators in International Investment Disputes on April 19, 2021.

Alexander G. Fessas planted a flag for even further procedural reform. The emerging divide between disputes of low-value and low-complexity disputes and disputes of high-value and high-complexity disputes, he argued, underscores the need to consider automation and other creative technological solutions. The proliferation of expedited arbitration for low-value, low-complexity disputes is a symptom of the demand for simple and fast dispute settlement options. The adoption of expedited arbitration among the package of reforms by other arbitral institutions demonstrates that it has passed the test of experience. The next frontier is online dispute resolution (Fessas recommended the work of Richard Susskind on online courts).

 

Perspectives from UNCITRAL Working Group III: States want fewer treaty claims, but many are not ready to abandon ISDS altogether

Ana María Ordoñez Puentes, chair of the Colombian delegation, said the goal is reform that produces the fastest possible effects without incentivizing investors to initiate even more arbitrations, particularly on frivolous claims. ISDS is an exceptional prerogative that Colombia grants to the foreign investments it wants to attract, but investors should only use it when there is an actual breach of the investment protection standards.

Makane Mbengue, who served as advisor to several African delegations, invoked the process of drafting the Pan-African Investment Code as a counterexample to Alvarez’s argument, where substantive reform was undertaken successfully, but adoption efforts were stymied by insufficient procedural reform. Today, there remains divergence between African countries on ISDS. States of the Southern African Development Community Region favor eliminating ISDS and returning to State-to-State dispute settlement, other states favor reforming ISDS in the mold of the Morocco-Nigeria BIT, and others yet support conducting dispute settlement before regional African courts or establishing a permanent African investment court.

Broadly, African countries are interested in turning ISDS into a dispute prevention tool alongside alternative dispute resolution mechanisms, but not in abandoning ISDS altogether. In November 2020, the African Union adopted a ministerial declaration on the risks of investor-state arbitration with respect to COVID-19 measures. The original proposal was for a moratorium on ISDS in Africa, but most AU Member States did not support sending a signal that Africa was opting out of ISDS. Instead, they opted to call for cooperation to mitigate the risks faced by countries implementing COVID-19 related measures. Efforts to establish a “culture of investment arbitration at the grassroots,” such as establishing an ICSID Center in Africa, are the path forward for ISDS in the region.

However, African countries are moving from the language of “investment protection” to “investment facilitation,” for example in negotiations for the Investment Protocol to the African Continental Free Trade Area. This signals a shift in prevalent understandings of the purposes of ISDS: Unlike mere protection, facilitation is win-win-win for home States, host States and foreign investors. Colin Brown argued that while the EU is witnessing more activity around “investment liberalization,” e.g., the EU-China Comprehensive Agreement on Investment, there remains an important role for treaties to play in investment protection.

 

Perspectives from UNCITRAL Working Group III: The UNCITRAL process holds the key to any future reform

Colin Brown, chair of the EU delegation to UNCITRAL Working Group III, said the working group has a “once-in-a-lifetime opportunity” to construct a framework for adjusting the 3000-odd investment treaties in existence. UNCITRAL Working Group III is the first multilateral process to holistically examine ISDS and the larger investment regime. Properly managing the process can create a framework that will structure reform efforts by future generations of investment policy makers.

The substantive rules of investment law are regarded as problematic because there is no permanent body to determine their content, he argued. Many of the questions being asked now about the investment regime were being asked about the GATT in 1980s. Negotiators largely did not change the substantive rules, but created a permanent appellate mechanism – the WTO Appellate Body – which provided the stability of authoritative interpretations. The EU is similarly focused on creating a permanent mechanism for investment law.

Jeremy Sharpe, speaking in his personal capacity, described the Working Group III discussions as a “nascent institution”: a forum for states to discuss common problems which is already a big improvement over the decentralized existing investment system. National delegations, he argued, are already implementing lessons learned from the Working Group discussions domestically. The proposed advisory center could play a similar institutional role for States to discuss issues such as best practices and capacity building. Such domestic and international “institutionalization” is the fundamental building block to dealing with any further reform, including substantive reform.

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Recent Issues Regarding Confidentiality in Arbitration in Brazil

Thu, 2021-06-03 01:40

It is well-known that confidentiality is a particularly important mechanism for protecting the information and data contained in a process in which disclosure could cause prejudice to the parties. That is because the mere existence of a lawsuit may sometimes lead to considerable consequences for the parties, as it may affect the perception of third parties about the relationships, the procedures and even the financial standing of the entities involved. Thus, the possibility of ensuring total confidentiality of arbitral proceedings can be extremely valuable, especially in highly competitive commercial environments.1)BAPTISTA, Luiz Olavo. Arbitragem comercial e internacional. São Paulo: Lex Magister, 2011, p. 219 jQuery('#footnote_plugin_tooltip_37590_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Fouchard, Gaillard and Goldman emphasize that confidentiality is one of the benefits why private parties choose arbitration for the resolution of their disputes, listing confidentiality as a fundamental principle of commercial arbitration.2)The authors also refer to a case where the Paris Court of Appeals punished a party for filing an appeal before a court which lacked jurisdiction and allowed public debates on facts that should have been remained confidential. See, FOUCHARD, Philippe; GAILLARD, Emmanuel; GOLDMAN, Berthold. Traité de l’arbitrage commercial international. Paris: Litec, 1996. p. 629. jQuery('#footnote_plugin_tooltip_37590_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Besides that, confidentiality is widely recognized as an intrinsic element of commercial arbitration.3)In this regard, it is worth mentioning an essay written by José Antonio Fichtner, Sergio Nelson Mannheimer and André Luis Monteiro, who highlight confidentiality as a true quality of arbitration (“Confidentiality in arbitration: general rule and exceptions”, Revista de Direito Privado, v. 49, 2012, p. 227-285, Jan. / Mar. 2012). jQuery('#footnote_plugin_tooltip_37590_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In fact, confidentiality is subject to the parties’ choice. Indeed, the power arising from the autonomy of the parties, allows them to reach an agreement regarding confidentially.4)For the avoidance of doubt, reference is made in this article only to commercial arbitration, leaving aside aspects related to arbitration involving public entities and those involving publicly listed companies. jQuery('#footnote_plugin_tooltip_37590_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This autonomy is revealed when the parties choose the applicable rules to their arbitration. Therefore, confidentiality is a rule set forth in several arbitration rules.5)See, José Emilio Nunes Pinto. “Confidentiality in arbitration”, Revista de Arbitragem e Mediação, São Paulo: RT, v. 2, 6, p. 25-36, Jul. / Set. 2005. jQuery('#footnote_plugin_tooltip_37590_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It was precisely because of the confidential nature of commercial arbitration and evolution of Brazilian case law and commentary on arbitration, that led the legislator to include the provision contained in article 189, IV of the Brazilian Civil Procedure Code (“CPC”), according to which: “Although procedural acts are public, lawsuits shall be prosecuted under a gag order when: (…) IV – they deal with arbitration, including the enforcement of arbitral decisions by means of a written request sent by the arbitral tribunal to the judiciary, provided the confidentiality stipulated in the arbitration proceedings is proven before the court.

However, the Appellate Court of São Paulo (“TJSP”), in a recent and polemic decision, found that this provision violates articles 5, LX, and 93, IX of the Brazilian Federal Constitution.

 

The TJSP’s Decision

The underlying dispute in this case concerned compensation of Escotilha Participações Ltda. for damages arising out of the termination of the partnership of GLS Brasil Serviços Marítimos Ltda.  After filing for arbitration and losing, the claimant alleged that the arbitral award breached the arbitration agreement, inter alia, and sought the annulment of the arbitral award.

With respect to the publication of the documents produced in the arbitration, the TJSP stated that:

Procedural acts, as a rule, are publicized, according to articles 5, LX, and 93, IX, of the Brazilian Federal Constitution. … The generalized imposition of secrecy and confidentiality in arbitral tribunals, contrary to what happens in the processes and judgments of the Judiciary, “is harmful to the legal system, because it causes information asymmetry and hinders the formation of law… the appellate decision by Judge PAULA DA ROCHA E SILVA FORMOSO, states quite accurately. The users have the right to be informed about existing case-law; businessmen, specifically, have the right to foresee, through the coherence that is always expected from those who have the noble mission of adjudicating, the probable result of judgments, and taking that into consideration when entering into commercial deals (…)” (TJSP, Interlocutory Appeal nº 2263639-76.2020.8.26.0000, reporting Justice Cesar Ciampolini, date of Judgment March 2nd, 2021).

In Brazil, all the documents produced by the parties during the arbitration proceedings are kept confidential.  However, when the TJSP ruled on the request for annulment of the arbitral award, all the documents became publicly available, violating article 189, IV of the BCPC.

 

Implications for Arbitration in Brazil

Contrary to what is suggested in the TJSP’s decision, the purpose of article 189, IV of the BCPC is not “The banalized imposition of judicial secrecy or confidentiality in arbitration proceedings”, which would prevent “the development of law (consolidation of precedents and case law).”  The legislator’s intention, after several years observing and studying arbitration practice in Brazil, was to preserve the functionality and soundness of the arbitration system, which is autonomous and dissociated from the Judiciary.  Knowing that the arbitral and judicial systems work in a coordinated and cooperative manner, the legislator succeeded in improving the Brazilian procedural system to preserve one of the most important elements of commercial arbitration, which is its confidential nature.

The TJSP’s decision seems to imply that confidentiality in arbitral proceedings would be in the interests of the arbitrators, who would have “generically established the confidentiality of their proceedings.”  This statement is incorrect. First, arbitrators must respect the will of the parties, who often seek confidentiality through the rules that will apply to the arbitration. Second, confidentiality does not only concern arbitrators, but the parties themselves, who consciously chose to settle their disputes in a private, reserved, exclusive sphere, separate from the Judiciary. And what would be the reason for this choice? The answer lies in the business world, in its market agents, who, for lawful reasons and in their own interests, have the legitimate right to protect their business.

Therefore, the abovementioned decision disregarded the parties’ choice to settle their disputes confidentially as well as the protection of trade secrets that are inherent to commercial disputes.  Although there is no public information that the dispute related to trade secrets, the subject is relevant to this post because during arbitration proceedings, parties may exhibit confidential documents and information which would be available to anyone if the case became public.

In this case, the decision failed to analyze the essentiality of trade secret, which is “protected by the constitutional clauses of free initiative (Brazilian Federal Constitution, article 1,  IV and 170, caput) and free competition (Brazilian Federal Constitution, article 170,  IV), with its repercussions in the infra-constitutional legislation (e.g. protection against the crime of unfair competition, as classified in the Industrial Property Law, article 195,  XI and  XI and § 1°, and violation of the economic order, as defined in Law n° 8884/94, article 21,  XVI )”.6)NERY JÚNIOR, Nelson. “Trade Secrets – free initiative”, Soluções Práticas. p. 361-370, Sept. 2010, 366-367. jQuery('#footnote_plugin_tooltip_37590_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Thus, it is of utmost importance for the parties in a commercial arbitration not to disclose their business data to the public. Even more so when the agreement containing the arbitration clause also has a confidentiality clause. The Brazilian Superior Court of Justice (“STJ”), even before the reform of the CPC in 2015 ruled in favor of total confidentiality in actions where the legal discussion involves commercial information of confidential and strategic nature.

It is common ground that the law does not contain meaningless words, and if the law established that arbitration proceedings are to be held confidentially, such provision was not added accidentally, and its reason for existence, as well as its usefulness, must be given effect.

 

Conclusion

Although the decision’s holding could be reversed in the future, two problems shall be taken into account by arbitration practitioners in Brazil: first, the violation of party autonomy and the disregard of an essential element of commercial arbitration (confidentiality); second, the exclusion of confidentiality in the post-arbitral phase may reduce the interest of the parties to resort to this restricted, private, and appropriate method for resolving disputes, worsening the proper functioning of the market.7)The operation of the market, the so-called “mercantile practice”, as well as the standards of conduct best adapted to its operation are described by Paula Forgioni (A evolução do direito comercial brasileiro: da mercancia ao mercado. São Paulo: Thomson Reuters Brazil, 5th edition, revised, updated, and expanded, 2021, p. 168-174). jQuery('#footnote_plugin_tooltip_37590_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37590_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

This year, the Brazilian Arbitration Act celebrates 25 years since its enactment.  In order for arbitration to remain as the main method for the resolution of business conflicts and maintain its success with the business community in Brazil, it is essential that the unrestricted confidentiality of the proceedings – from the pre-arbitration phase to the post-arbitration phase – be respected, complying with the rule contained in article 189, IV of the CPC, and, ultimately, ensuring legal certainty and foreseeability for the users of commercial arbitration.

References[+]

↑1 BAPTISTA, Luiz Olavo. Arbitragem comercial e internacional. São Paulo: Lex Magister, 2011, p. 219 ↑2 The authors also refer to a case where the Paris Court of Appeals punished a party for filing an appeal before a court which lacked jurisdiction and allowed public debates on facts that should have been remained confidential. See, FOUCHARD, Philippe; GAILLARD, Emmanuel; GOLDMAN, Berthold. Traité de l’arbitrage commercial international. Paris: Litec, 1996. p. 629. ↑3 In this regard, it is worth mentioning an essay written by José Antonio Fichtner, Sergio Nelson Mannheimer and André Luis Monteiro, who highlight confidentiality as a true quality of arbitration (“Confidentiality in arbitration: general rule and exceptions”, Revista de Direito Privado, v. 49, 2012, p. 227-285, Jan. / Mar. 2012). ↑4 For the avoidance of doubt, reference is made in this article only to commercial arbitration, leaving aside aspects related to arbitration involving public entities and those involving publicly listed companies. ↑5 See, José Emilio Nunes Pinto. “Confidentiality in arbitration”, Revista de Arbitragem e Mediação, São Paulo: RT, v. 2, 6, p. 25-36, Jul. / Set. 2005. ↑6 NERY JÚNIOR, Nelson. “Trade Secrets – free initiative”, Soluções Práticas. p. 361-370, Sept. 2010, 366-367. ↑7 The operation of the market, the so-called “mercantile practice”, as well as the standards of conduct best adapted to its operation are described by Paula Forgioni (A evolução do direito comercial brasileiro: da mercancia ao mercado. São Paulo: Thomson Reuters Brazil, 5th edition, revised, updated, and expanded, 2021, p. 168-174). function footnote_expand_reference_container_37590_30() { jQuery('#footnote_references_container_37590_30').show(); jQuery('#footnote_reference_container_collapse_button_37590_30').text('−'); } function footnote_collapse_reference_container_37590_30() { jQuery('#footnote_references_container_37590_30').hide(); jQuery('#footnote_reference_container_collapse_button_37590_30').text('+'); } function footnote_expand_collapse_reference_container_37590_30() { if (jQuery('#footnote_references_container_37590_30').is(':hidden')) { footnote_expand_reference_container_37590_30(); } else { footnote_collapse_reference_container_37590_30(); } } function footnote_moveToAnchor_37590_30(p_str_TargetID) { footnote_expand_reference_container_37590_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Setting the Stage for the Final Yukos Setting Aside Verdict in The Hague: Advocate General Advises Dutch Supreme Court to Uphold PCA Awards

Wed, 2021-06-02 01:18

On 23 April 2021, Paul Vlas, Advocate-General of the Dutch Supreme Court issued his opinion in the Yukos case, setting the stage for the final setting aside act in The Hague after nine years of PCA-administered arbitration and six years of setting aside litigation. Advocate-General Vlas had previously advised the Dutch Supreme Court to reject Russia’s request for suspension of enforcement, with the latter eventually following the Advocate-General’s opinion in December 2020. The 23 April 2021 opinion deals with a spectrum of controversial topics, ranging, inter alia, from the issue of whether Russia was bound to provisionally apply the Energy Charter Treaty (ECT) to questions regarding the role of the tribunal’s assistant. In this round, Russia has also sought to involve the Court of Justice of the European Union, requesting a preliminary reference on questions related to the interpretation of the ECT. This blog post will cover some of the matters discussed in Advocate-General Vlas’ opinion.

 

Provisional Application of the ECT

In the setting aside proceedings in The Hague, Russia has sought to annul the USD 50 billion awards that found Russia liable for breaches of the ECT in respect of its treatment of former oil company Yukos. In 2016, Russia scored a victory in the District Court of The Hague, which found that the Yukos tribunal had wrongly assumed jurisdiction because Russia was not bound to provisionally apply the (dispute resolution clause of the) ECT (see earlier blog here). This judgment was reversed by the Court of Appeal of The Hague (see earlier blog here).

In the view of the Advocate-General, the Court of Appeal judgment should be taken as the final word on the issue.

The Advocate-General starts his reflections by noting that a provisional application mechanism (such as the one found in Article 45 of the ECT) serves to effectuate the intended benefits of a treaty prior to the completion of lengthy national ratification procedures. At the same time, the Advocate-General observes that such mechanisms have been criticised for posing a potential threat to the domestic separation of powers, an issue that was also touched upon by the District Court of The Hague (see earlier blog here).

Article 45(1) of the ECT on provisional application reads:

‘Each signatory agrees to apply this Treaty provisionally …, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’.

The Advocate-General notes that, by now, three different interpretations of this clause have emerged. According to the so-called ‘all or nothing’ approach that was adopted by the arbitral tribunal, Article 45 ECT is concerned with whether the mechanism of provisional application as such is not inconsistent with domestic law (see here). By contrast, according to the ‘piece-meal’ approach followed by the District Court of The Hague, the crucial question is whether a specific ECT provision that is to be provisionally applied is not inconsistent with domestic law. The Court of Appeal of The Hague adopted a third variation, ruling that Article 45 ECT applies as long as the provisional application of a specific ECT provision is not inconsistent with domestic law, and concluding that Russian law does not exclude the provisional application of specified (categories of) treaty provisions. In the opinion of the Advocate-General, the Court of Appeal’s approach fits with the ordinary meaning of the wording of Article 45 ECT.

The Advocate-General suggests dismissing Russia’s complaint that a domestic court cannot uphold arbitral jurisdiction on other grounds than those applied by the tribunal itself. Since under Dutch law the jurisdiction of an arbitral tribunal is subject to de novo review, the question before the courts is not whether the tribunal had established its jurisdiction on a correct basis but whether the tribunal had jurisdiction. This approach avoids the situation where parties would be referred to adjudication because the tribunal established its jurisdiction on the wrong basis even if their intention was to resolve a dispute through arbitration.

 

No Need to Involve the CJEU

In the cassation proceedings, Russia has asked the Dutch Supreme Court to submit a preliminary reference regarding the ECT to the CJEU, arguing that the ECT is a mixed agreement that requires a consistent interpretation among the EU institutions and the member states. According to the Advocate-General, however, the CJEU is only competent to interpret a mixed agreement when the EU has adopted instruments implementing the relevant treaty, which has not happened in respect of the ECT. The Advocate-General extensively discusses the Opinion of Advocate-General Szpunar of the CJEU in Moldavië/Komstroy (see earlier blogs here and here), who considered that the CJEU has jurisdiction to interpret the ECT since the substantive provisions of the ECT might apply within the EU legal order even if the ISDS mechanism of the ECT violates EU law (in Advocate-General Szpunar’s view, see further here). Noting that Advocate-General Szpunar failed to discuss the CJEU’s own case law that links the CJEU’s jurisdiction to interpret mixed agreements to the existence of implementing legislation, Advocate-General Vlas concludes that, in any event, a preliminary reference must be necessary for adjudging a particular dispute. In his view, this condition is not fulfilled in the Yukos case, inter alia, because the case concerns the ECT’s provisional application in Russia and not in the EU.

 

The ‘Investor’ and ‘Investment’ Definitions of the ECT

Russia has argued that the claimants in the Yukos arbitration were controlled by Russian investors who made use of ‘U-turn arrangements’ to qualify for protection under the ECT. The Advocate-General notes that this claim should be assessed in light of the ECT’s own definition of the terms ‘investor’ and ‘investment’, referring to Article 31(4) VCLT, which respects a term’s ‘special meaning’ if intended by the parties. The Advocate-General agrees with the Court of Appeal’s judgment that the object and purpose of the ECT do not require that further conditions be read into the ECT’s definitions of ‘investor’ and ‘investment’. He also argues that recent reform suggestions by the EU institutions proposing to exclude letterbox companies from the scope of the ECT cannot qualify as subsequent practice in the sense of the VCLT. Even if some tribunals have imposed additional requirements in the context of the ICSID Convention or specific bilateral investment treaties, the Advocate-General agrees with the Court of Appeal that such requirements do not constitute a general rule and are not necessarily applicable to the ECT. This might mean that letterbox companies can benefit from the ECT’s protection, but the denial of benefits-clause gives contracting states the opportunity to prevent this if so desired. In response to Russia’s claim that the claimants’ investments were tainted by illegality, the Advocate-General notes that the ECT does not contain an explicit legality requirement and that the implicit legality requirement recognised by arbitral case-law does not affect jurisdiction (see also this blog).

 

Taxation

A further range of arguments concerned the ECT’s carve-out for taxation measures (Art. 21(1) ECT) and the claw-back for taxation measures constituting expropriation (Art. 21(5) ECT). Russia complained that the tribunal had failed to make a referral to Russia’s tax authorities, as required by Article 21(5)(i) ECT. The Advocate-General notes that even if a referral had taken place, the tribunal would not have been obliged to follow the conclusions of the domestic tax authorities. Accordingly, the Advocate-General agrees with the Court of Appeal that the tribunal’s failure to involve the domestic tax authorities was not serious enough to justify the setting aside of the award.

 

The Role of the Tribunal’s Assistant

Russia’s most sensational complaint in the setting aside proceedings was that the tribunal’s assistant had drafted significant parts of the award (see earlier blogs here, here, here and here). According to the Advocate-General, there is no generally accepted rule or practice that makes it in all cases unacceptable for a tribunal to delegate the drafting of substantive parts of an award to a secretary. Rather, the absence of such a general rule explains why some arbitration rules explicitly address the matter. If the applicable rules do not do so, the tribunal has discretion to delegate certain tasks to the secretary, as long as they fulfil their own duties.

Accordingly, a party seeking to set aside an award on this ground would have to prove that the arbitrators failed to properly execute their mandate. This could be the case if a tribunal would simply adopt the drafts or unduly involve the secretary in the decision-making process. According to the Advocate-General, this high burden of proof fits with the seriousness of the allegation made vis-à-vis the tribunal and with the judicial restraint incumbent on the court in this context.

In the case at hand, the Advocate-General concludes that Russia has failed to demonstrate that the arbitrators did not exercise their own mandate or that the secretary had functioned as a ‘fourth arbitrator’, although the tribunal should have informed the parties of the secretary’s role. Moreover, according to the Advocate-General, the Court of Appeal had not erred when it rejected Russia’s proposal to hear the secretary, since even if he had provided drafts for significant parts of the award, this would not amount to a ground for setting aside the awards.

 

Concluding Remarks

In his opinion, the Advocate-General agreed with the Court of Appeal on most counts. If the Dutch Supreme Court follows the opinion, Russia’s initial success in the District Court of The Hague will have been conclusively overturned and six years of attempts to set aside the PCA awards will have come to an unsuccessful end. At the same time, the judgment will not put an end to the Yukos litigation in courts and tribunals around the globe, as the beneficiaries of the PCA awards will likely increase their enforcement efforts in various jurisdictions (see earlier blog here) while subsequent investment arbitrations brought by other shareholders remain pending.

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Judge McDonald on Diversity in International Law: “It Saddens and Pains Me that Not a Lot Has Changed.”

Tue, 2021-06-01 01:06

The Institute for Transnational Arbitration (ITA) hosted an oral history session with The Hon. Gabrielle Kirk McDonald, interviewed by Prof. Victoria Shannon Sahani. The session, held on March 22, 2021, was part of the ITA Academic Council’s ongoing Preserving Perspectives project which aims to record the evolution of modern international arbitration in the words of those who have led it. Judge McDonald gave a chronological account of her career, provided anecdotes from her service at the International Criminal Tribunal for the Former Yugoslavia and the Iran-US Claims Tribunal, and ended with a call for stronger efforts to support Black Americans in international law and international arbitration.

Judge McDonald, who described herself as a civil rights lawyer-turned-international judge, was born in 1942. As a child, her family was turned away from apartments located on Netherlands Avenue in New York because of their race, one of the many experiences that led her to become a civil rights lawyer.

She attended law school at Howard University, which she described as “the center for the development of the civil rights campaign to end segregation in the public schools.” Thurgood Marshall was a few years her senior. The experience was “transformative” and “liberating” for a student who had spent most of her studies as the only African-American in class.

Noted civil rights lawyer Charles Hamilton Houston was her mentor. He taught his students that any lawyer who is not a social engineer is a parasite on society. “That tells you what we trained to do at Howard, and it turned out to be the case,” said McDonald. She graduated as valedictorian at a time when there were 142 African American women lawyers in entire United States, taking up a job at the NAACP Legal Defense Fund, the foremost civil rights legal organization in the country.

By the 1970s, she had become a successful employment discrimination attorney. In 1979, McDonald was nominated by President Carter to the district court of the Southern District of Texas, becoming the first African-American female federal judge in Texas and the third in the United States. In 1981, she was asked to recuse herself in a dispute between American and Vietnamese fishermen that involved the Ku Klux Klan. She refused.

“By the time I became a judge, I’d argued many cases in the south before district court judges. We were not well received. You could look at the judge and tell that he would rather you not be there. I was determined to be different. I looked upon the district court as the people’s court,” she said.

In 1993, after she had resigned from the bench and was intending to embark on a teaching career, she received the call that began her international career: an offer of a judgeship on the International Criminal Tribunal for the Former Yugoslavia (ICTY). Only a few months had passed since the United Nations Security Council had voted to establish a war crimes tribunal to prosecute persons responsible for serious violations of international humanitarian law in the former Yugoslavia. McDonald had the rare opportunity to design a court from scratch.

Under the leadership of Judge Antonio Cassesse – “a difficult taskmaster,” said McDonald – the eleven judges of the new tribunal began to draft the rules of procedure. They debated over issues such as trials in absentia. The civil law judges were in favor, McDonald and others were opposed. After a few days of circling the issue, the judges reached the compromise that no trials would be conducted in absentia, but indictments would be publicized to the global community. But there were more quotidian start-up concerns too: the ICTY had no premises. Eventually, the United Nations located an insurance building, which McDonald and her fellow judges toured to assess suitability. In the absence of a court room, they continued to draft the rules in the old insurance offices. Eventually, the tribunal secured funding for one, and then an additional two, court rooms. In the meantime, in 1997, McDonald was elected president of the ICTY. She resigned due to her ailing health two years later.

In 2001, McDonald was appointed as one of three American arbitrators on the Iran-US Claims Tribunal. She was, once again, the first woman in the room. Her Iranian colleagues called her “Lady Judge,” but she experienced even more discrimination from a third country arbitrator and an American colleague. The third country arbitrator passed her a racist ephemeronduring a hearing. An American colleague disrespected her in “such an egregious way that the full tribunal took up the issue.” Another arbitrator praised her for the “high morality” she showed in response, but McDonald was “saddened that other countries saw what I saw.”

McDonald became the first black honorary president of the American Society of International Law in 2014. One of her achievements was creating Blacks of the American Society of International Law (BASIL), a group which seeks “to increase the number and influence of Blacks in international law in the United States.” Her experience as the only African-American in many international legal settings was a problem. “International law and international arbitration needs to reflect our country,” she said. “US international arbitrators present an image to the world, and the question is, what kind of image are you going to present?”

Yet Black law students correctly perceive international arbitration to be a homogenous profession. McDonald cited research by Katherine Simpson showing that out of the 3430 arbitration practitioners at US law firms, only 57 are Black Americans. The talent is available, she said, but it is not being called upon.

While the representation of women in international arbitration has improved during her career, the experience of Black women has not. “When I say women, unfortunately I mean white women,” she said. “Although women as a group are doing better, though still not where they should be, race trumps gender, because Black women are still in the lowest of all categories.”

“It saddens and pains me that not a lot has changed,” she said. “I’ve been doing this for 55 years. It wasn’t until I was 23 that the Civil Rights Act was passed. Until then, I was denied, because of my race, the full rights of citizenship. It doesn’t go back to 1863, this kind of attitude, it goes back to 1965. I want to see some change. I’m in the twilight of my life, and I want to see a better world for my grandson.”

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Release of the New Canadian FIPA Model: Reflections on International Investment and ISDS at a Crossroads

Mon, 2021-05-31 01:31

On May 13, 2021, after several years of public consultations, Global Affairs Canada released a new Foreign Investment Promotion and Protection Agreement Model (“2021 Model”). The prior iteration of the FIPA Model was broadly understood to have been influenced by Canada’s experience under the NAFTA regime. Similarly, the 2021 Model benefits from Canada’s continued trade and investment experience, recent trends in investment treaty law, and the latest debates on the future of investor-State dispute settlement (“ISDS”). This post provides an overview of the 2021 Model and highlights how it reflects emerging policy objectives, clarifies certain standards of protection, and promotes alternative routes for resolving investment disputes. This post also draws comparisons between the 2021 Model and the recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP,” which entered into force for most of its parties on December 30, 2018), Canada-U.S.-Mexico Agreement (“CUSMA,” also known as USMCA or T-MEC, which entered into force on July 1, 2020), and Comprehensive Economic and Trade Agreement (“CETA,” which is currently pending ratification by all members of the European Union).

 

The 2021 FIPA Model and Evolving Policy Objectives

While older investment and trade treaties focused primarily on achieving economic prosperity, “new” generation treaties tend to provide comprehensive frameworks that reflect national (and international) agendas for promoting sustainable development, corporate social responsibility, and human rights. The 2021 Model reflects the Canadian approach to these goals.

The Right to Regulate, Ensuring Responsible Business Conduct, and Protecting Human Rights

In recent years, a State’s right to regulate in the interests of its population, notwithstanding the protections granted to foreign investments, has become a core and enduring topic. Canada has faced this issue several times in NAFTA arbitrations. Therefore, the 2021 Model, in addition to stating this overarching objective in its Preamble, also reaffirms the Parties’ right to regulate to achieve legitimate policy objectives concerning health, the environment, climate change, gender equality, rights of Indigenous peoples and cultural diversity (Art. 3).1) The “Summary of Main Changes” posted on Global Affairs Canada’s website mentions that “tobacco control measures are automatically excluded from dispute resolution and, therefore, cannot be challenged by investors under ISDS or State-to-State dispute settlement.” This exclusion is likely elaborated in Annex III (“Exclusions from Dispute Settlement”), but the text of this Annex has not yet been made available. jQuery('#footnote_plugin_tooltip_37500_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37500_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Although Canada has reiterated its commitment to the Paris Climate Agreement in the CETA Joint Committee Recommendation, the reference to regulation in response to climate change in the 2021 Model seems like an innovative inclusion.

The 2021 Model expands on the idea of “responsible business conduct” (“RBC”) (Art. 16), which requires investors to comply with laws and regulations on human rights, gender equality, environmental protection and labour. It also encourages investors to voluntarily incorporate into their business practices the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, as well as other internationally recognized standards, guidelines and principles concerning labour, environment, gender equality, human rights, community relations and anti-corruption. Investors are likewise invited to engage in meaningful dialogue with local (including Indigenous) communities. Global Affairs Canada is not new in supporting internationally responsible business conduct. Notably, the government already maintains the Canadian Ombudsperson for Responsible Enterprise (CORE), which offers guidance and dispute resolution services, consistent with international standards, for Canadian companies operating abroad.

Protecting Indigenous Peoples’ Rights

The desire and need to ensure Indigenous peoples’ rights and participation in the 2021 Model are hardly surprising, considering that rights of Indigenous peoples enjoy constitutional protection. Although the Crown need not consult Indigenous peoples before entering into free trade agreements when the impact of such agreements on their rights is speculative (as determined in Hupacasath First Nation v. Canada), it does have the duty to consult them whenever: “(1) the Crown has knowledge, actual or constructive, of potential aboriginal claims or rights; (2) the Crown proposes conduct or a decision; and (3) that conduct or decision may have an adverse impact on the Aboriginal claims or rights” (Rio Tinto Alcan Inc. v. Carrier Sekani Tribal Council, para. 51). Therefore, as previously discussed on the Blog, Indigenous peoples’ rights are intrinsic to Canada’s international treaty-making practice. As such, in CPTPP (Annex II), CUSMA, and CETA (Annex II-C-1), Canada reserved the right to adopt or maintain measures denying foreign investors and their investments rights or preferences provided to Indigenous peoples.

The approach in the 2021 Model is consistent with these recent trends and guarantees Canada’s right to adopt or maintain “a measure necessary to fulfill Aboriginal or treaty rights as recognized and affirmed by section 35 of the Constitution Act, 1982” (Art. 22). Additionally, the 2021 Model requires Parties to ensure transparency of their laws, regulations, procedures and administrative rulings regarding Indigenous peoples’ rights (Art. 15), as well as the investors’ compliance with them (Art. 16). Neither Party may offer to or actually relax, waive or otherwise derogate from Indigenous peoples’ rights in order to encourage investments in its territory (Art. 4). “Public purpose,” in the context of expropriation, may have a different meaning for Indigenous peoples (Art. 9, fn. 3). Finally, ISDS tribunals are empowered to appoint experts to report on rights of Indigenous peoples, either upon request or on their own initiative, unless the disputing parties do not consent (Art. 38).

 

Evolving Substantive Protections for Foreign Investors

Whereas obligations to provide National Treatment (“NT,” Art. 5) and Most Favored Nation treatment (“MFN,” Art. 6) have been maintained, the 2021 Model clarifies that “a difference in treatment accorded to an investor or covered investment and a non-Party’s investors or investments of a non-Party’s investors does not, in and of itself, establish discrimination based on nationality” (Art. 6(5)). Moreover, MFN does not to apply to procedures for the resolution of investment disputes (Art. 6(6)).

Similar to the earlier FIPA Model, the Minimum Standard of Treatment (“MST”, Art. 8) presupposes treatment in accordance with customary international law. However, unlike the previous model, it no longer refers to  Fair and Equitable Treatment (“FET”). Rather, possible violations of MST are clearly enumerated and include, among others, denial of justice and failure to provide full protection and security (“FPS”). The 2021 Model clarifies that the FPS standard, which has for years divided tribunals, concerns only the physical security of an investor and their investment (fn. 2), which is similar to the approach taken in CETA (Art. 8.10(5)). Interestingly, CUSMA (Art. 14.6(2)(b)) and CPTPP (Art. 9.6(2)(b)) do not expressly limit the standard to physical security but require each Party to provide “the level of police protection under customary international law” (an approach similar to that of the 2012 US Model BIT).

In sync with the overarching narrative of the 2021 Model, the provision on expropriation (Art. 9) states that a non-discriminatory measure which is “adopted or maintained in good faith to protect legitimate public welfare objectives” will not constitute indirect expropriation, even if it has an effect equivalent to expropriation. Furthermore, expropriation will only occur if it concerns “a covered investment that is a tangible or intangible property right under the domestic law of the Party in which the investment is made.” Finally, the new Model also brings some clarity to the issue of compensation. (Art. 9(5)).

 

The 2021 FIPA Model and ISDS Reform

As already discussed, in recent years Canada has been actively negotiating and bringing into force new treaties, each carrying its own approach to ISDS. The 2021 Model takes into account innovative approaches to ISDS as a whole, and also the latest best practices.

An Overall Commitment to ISDS and Dispute Resolution

Canada’s withdrawal from ISDS in CUSMA has raised a few brows, as it means that ISDS claims can no longer be asserted by Canadian investors, nor against Canada (except, for a limited time, with respect to “legacy investments” under the pre-existing NAFTA regime). CETA, on the other hand, reflects a shared European Union and Canadian decision to “pursue [] the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes” (Art. 8.29).

Canada’s divergent approaches to ISDS in these recent treaties can perhaps be reconciled through the 2021 Model’s approach, which commits Canada to ISDS in principle, but only alongside and in addition to other methods of dispute resolution.

The 2021 Model envisages mandatory steps that must be completed before a claim is submitted to arbitration. This includes a requirement for investors to seek to resolve the dispute through consultations within certain time periods calculated based on their knowledge of the claim or the withdrawal from domestic proceedings (Art. 25). Should consultations fail, once 180 days since the other Party received a request for consultations have elapsed, an investor may bring a claim under the ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules or any other rules on agreement of the disputing parties (Art. 27). Failing to do so within one year of the delivery of the request for consultations will result in  the request for consultations being considered withdrawn (Art. 25(7)). Once a claim is submitted, an investor must continue being proactive; if no steps are taken within 180 days of the submission of a claim to arbitration (or other deadline, as agreed), an investor is deemed to have withdrawn its claim and discontinued the proceedings (Art. 29).

However, if an investor opts for mediation at any point in time, and parties agree to have recourse to mediation, the time limits concerning consultations and all timelines pursuant to an arbitration agreement are suspended, which should allow the parties to engage in serious discussions (or so it is hoped) (Art. 26).

The Potential for an Appellate Mechanism

Alongside arbitration, the 2021 FIPA requires Parties to consider other ISDS mechanisms, “consisting of a first instance investment tribunal or an appellate mechanism,” should such mechanisms be “developed under other institutional arrangements and [are] open to the Parties for acceptance.” A similar instruction exists in CPTPP (Art. 9.23(11)).

For now, the only appellate mechanism that may be considered is that developed under CETA (though it is unknown if the Appellate Tribunal created under CETA would be “open [] for acceptance” by parties under a different future investment treaty emanating out of the 2021  Model). The CETA Appellate Tribunal (once operative) is empowered under rules adopted earlier this year to hear appeals of awards rendered under Chapter 8, Section F of CETA. Appeals are to be brought within 90 days of the award’s issuance and are based on the following grounds: errors in the application or interpretation of applicable law, manifest errors in the appreciation of the facts, and annulment grounds of the ICSID Convention.

An Interest in Transparency, Legitimacy, and Speed

The 2021 Model responds to the latest debates in ISDS reform, including concerns about transparency, legitimacy, and the costs and length of arbitral proceedings.

In an effort toward transparency, it expressly requires a claimant benefiting from a third-party funding arrangement to disclose to the respondent Party and to the Tribunal the name and address of the third-party funder early in the arbitration, with an ongoing obligation to disclose any change in such circumstances (Art. 42).

With respect to diversity, the 2021 Model includes detailed provisions on the arbitrators who may conduct ISDS proceedings (Art. 30). Notably, “disputing parties are encouraged to consider greater diversity in arbitrator appointments, including through the appointment of women.” Relatedly, readers may recall that last year the CETA arbitrator roster failed to reflect diversity goals, that failure was acknowledged, and improvement efforts are apparently underway. As such, the 2021 Model rebalances the “solution” to the diversity challenge and puts the onus on parties and their counsel to select (or at least consider) diverse candidates.

Moreover, all arbitrators are expected to abide by an Arbitrator Code of Conduct for Dispute Settlement that accompanies the 2021 Model. It expressly seeks to be “interpreted in a manner consistent with other internationally recognized standards or guidelines regarding direct or indirect conflicts of interest,” including IBA Guidelines on Conflicts of Interest in International Arbitration (Code of Conduct, Art. 3). It is designed to clarify the disclosure requirements, ensure proper performance of duties by arbitrators, and at all times, confirm the impartiality and independence of sitting arbitrators. A further interesting element is the obligation of former arbitrators to not “create the appearance that the arbitrator was biased in carrying out his or her duties or would benefit from the decision, order or award” that was rendered.

Finally, in a bid to react to the chorus of concerns about the costs and length of arbitral proceedings, an expedited arbitration section outlines alternate methods (Section F). In particular, parties may consent to expedited arbitration before a sole arbitrator where the damages claimed do not exceed CAD$ 10 million (Arts. 47 and 49) or coordinate mediation to resolve the dispute (Art. 48).

 

Concluding Remarks

Canada is currently holding exploratory discussions and negotiations with a number of countries, such as China, Ghana, India, Philippines, Thailand, Turkey, to name a few, and is set to commence negotiations on a new Canada-United Kingdom free trade agreement before April 2022 (as per Art. IV(1) of the Canada-UK Trade Continuity Agreement). As the 2021 Model is an example of modern treaty-draftsmanship that encapsulates the needs of investors, all the while addressing concerns raised by host States and civil society in recent years, it is likely to inform Canada’s position in these and other treaties on the horizon.

 

* The views expressed herein are those of the author and do not necessarily reflect the views of Woods LLP or its partners.

References[+]

↑1 The “Summary of Main Changes” posted on Global Affairs Canada’s website mentions that “tobacco control measures are automatically excluded from dispute resolution and, therefore, cannot be challenged by investors under ISDS or State-to-State dispute settlement.” This exclusion is likely elaborated in Annex III (“Exclusions from Dispute Settlement”), but the text of this Annex has not yet been made available. function footnote_expand_reference_container_37500_30() { jQuery('#footnote_references_container_37500_30').show(); jQuery('#footnote_reference_container_collapse_button_37500_30').text('−'); } function footnote_collapse_reference_container_37500_30() { jQuery('#footnote_references_container_37500_30').hide(); jQuery('#footnote_reference_container_collapse_button_37500_30').text('+'); } function footnote_expand_collapse_reference_container_37500_30() { if (jQuery('#footnote_references_container_37500_30').is(':hidden')) { footnote_expand_reference_container_37500_30(); } else { footnote_collapse_reference_container_37500_30(); } } function footnote_moveToAnchor_37500_30(p_str_TargetID) { footnote_expand_reference_container_37500_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Second Draft of the Code of Conduct for Adjudicators in International Investment Disputes: Towards a Likely Agreement?

Sat, 2021-05-29 01:06

On April 19, 2021, the Secretariats of the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) released the second draft of the Code of Conduct for Adjudicators in International Investment Disputes, a key feature of the Investor-State Dispute Settlement (ISDS) reform process which is presently under way at UNCITRAL Working Group III (WGIII).

The second draft builds on the first draft that was published in May 2020 and reflects extensive comments received by the two Secretariats (organized by State/commenter here, and by Article and Topic here), as well as important disseminations and discussion events (for example here) that the ICSID and UNCITRAL Secretariats organized with member States and other stakeholders. The new version is streamlined and more concise and reflects the general consensus that has so far been shown to exist among stakeholders. The second draft will be discussed next on June 7th, 2021 at a joint event organized by ICSID and UNCITRAL. It will then go for further review at the next meeting of WGIII in November with a possible early adoption of a Code of Conduct to follow shortly thereafter.

In this contribution, I will briefly explain and assess the most salient novel aspects of the new draft.

 

Changes to the Overall Format and Structure of the Code

The format of the second Draft has changed as compared to the first Draft: it now has 11 articles instead of the 12 articles, and overall the language is tighter and clearer. There are fewer repetitions and the Code is more readable. The second draft also includes some significant changes related to the definition of certain terms and the applicability of certain provisions.

The new version of the Code rearranges its provisions so that the substantive provisions of the Code are now grouped together in the central part of the Code (Articles 3-9) followed by the obligations related to disclosures, which are now contained in Article 10 (of which more later). Article 11 relates to the enforcement of the Code (with some interesting new language analyzed below) after which a new Annex I containing a Declaration, Disclosure and Background Information is introduced.

The revised Code also includes clearer definitions of key terms. In Article 1, containing definitions, for example, there is a clearer definition of the term ‘adjudicator’ which includes ‘arbitrator’ and ‘judge’. The meaning of ‘arbitrator’ is further defined as “a member of an ad hoc tribunal or panel, or member of an ICSID ad hoc Committee who is appointed to resolve an ‘International Investment Dispute’ [IID].” IID is then defined in the same provision as “a dispute arising pursuant to the investment promotion and protection provisions in an international treaty.” This new language means that the Code will only apply to disputes arising from certain provisions of international investment treaties, and will not apply – as the previous draft did – to those arising from contracts or domestic law provisions.

Article 1 also introduces a separate definition of ‘judge’ as a person “appointed to a standing mechanism for IID settlement.” This is a helpful clarification which takes into consideration the comments of those countries, especially from the European Union, whose ISDS reform agenda includes the creation of a permanent court for investment. This distinction is carried out throughout the commentary of the second draft to explain what provisions specifically apply to judges versus adjudicators. Throughout the explanation of the changes to the second draft, moreover, there are ample references to a future commentary to be written to clarify the content of each provision. This highly desirable commentary will be an invaluable tool for the application of the Code.

Article 2 then specifies in details which provisions apply to adjudicators and candidates, and which provisions will continue to apply after the conclusion of proceedings. It also stipulates that adjudicators must take reasonable steps to ensure that their assistants (defined in Article 1 as a person working under the direction and control of the Adjudicator) are aware of and comply with the Code.

Article 3 sets out, in a new a tighter language, the fundamental obligation of independence and impartiality, which is the key to any ethics code and common in all such codifications. It also sets out the related obligations to take reasonable steps to avoid bias, conflict of interest, impropriety and the appearance of bias.

Other general duties included in the Code are the duty of diligence (which in this version has its own provision in Article 4) the duties of integrity, fairness and competence, the obligation for adjudicators to engage in continued education activities, the duty to treat the parties with civility and the obligation to refuse an appointment should one be too busy or lack competence and necessary skills (Article 6). Article 8 addresses confidentiality and Article 9 relates to fees and expenses.

 

Three Key Issues

In my previous contribution to this blog on the first draft of the Code (here), I highlighted three key ethical issues that have generated strong views from State negotiators and other stakeholders, namely: issue conflict, double-hatting and repeat appointments.

The new draft makes some important changes on each of these issues.

Issue conflict was addressed only indirectly in the first draft by requiring an adjudicator to disclose all publications and all relevant public speeches. The commentary of the first draft also referred to issue conflict directly. Issue conflict generated a lot discussion. The second draft of the Code does not contain similar disclosure obligations and there is no reference to issue conflict at all. Issue conflict is notably difficult to define and regulate (see the excellent explanations and discussions here) and the new draft reflects the lack of agreement expressed by States on this topic. Besides, an issue conflict would continue to be challengeable as it amounts to a lack of independence and impartiality.

Double hatting is regulated in Article 4 of the new draft, with the heading ‘limit on multiple roles,’ which is the same as the prior draft, where it was regulated in Article 6. There are several significant modifications in the new draft. First, as suggested by some delegates, disputing parties may expressly agree to an adjudicator serving in multiple roles. Second, the limitation on multiple roles is narrowed to counsel and expert only, and does not include ‘witness, judge, agent or any other relevant role.’ While some of the prior drafting was redundant (e.g. judge) the general (though possibly too open-ended) reference to ‘any other relevant role’ was useful in including other positions (such as advisor to third party financing firms). Third, the new limitation only includes concurrent representations and eliminates the reference (which in the first draft was in bracketed text) to a temporal limitation. Fourth, the text now provides bracketed text that can limit the otherwise extensive prohibition on double hatting. Without the bracketed text, no adjudicator will be able to serve concurrently as counsel or expert in other IID cases without the disputing parties’ agreements. Conversely, the bracketed text, if added, would limit considerably the provision by restricting the prohibition of multiple roles to cases involving the same factual background and at least one of the same parties, subsidiary, affiliate or parent entity. This new, and clearer, provision tries to strike a new balance among the multiple ways to regulate double hatting and will be surely discussed extensively in the forthcoming negotiations. The text without the bracketed language seems to be more in line with the most recent treatment of the issue in new investment treaties (see here for some examples).

The issue of repeat appointment is still (as in the first draft) treated as a matter of disclosure. Article 10 requires ample and continuous disclosure, including of all prior and concurrent appointments as adjudicator, counsel and expert witness. The provision contains numerous instances of bracketed text that would restrict or broaden the required disclosure to non-IID proceedings and introduce a temporal limitation to disclosure obligations of 5 to 10 years. The Code does not prohibit repeat appointments, which would remain permissible unless is raises concerns related to lack of independence and impartiality. In the previous draft, repeat appointment was regulated when it interfered with the availability of the adjudicator (in former Article 8), which was difficult to assess. This prohibition is not included in the new draft.

 

Disclosure Obligations and Enforcement of the Code

Disclosure obligations play an important role in the architecture of the Code, even if the provision was moved to the back of the Code. Adjudicators are required to provide extensive disclosure and have a continuous duty to disclose and should err in favor of disclosure.

In addition to the comments made above in relation to issue conflict and repeat appointments, the new draft contains some noteworthy novelties. First, it specifies that  adjudicators disclosure is to be seen as related to matters that could give rise to doubts as to their independence and impartiality in eyes of the parties. Second, it states specifically that the mere fact of non-disclosure does not establish a breach of the Code. Indeed, Article 11 on enforcement indicates that disqualification and removal procedures will not apply to Article 10. It is therefore unclear what the consequences of a lack of disclosure would be under the system. A failure of disclosure would be relevant to assess the provisions in articles 3 to 8, but by itself it cannot give rise to challenges. Third, a new Annex 1 appointment includes a simplified disclosure form to be filled prior to or upon accepting appointments.

Article 11 addresses enforcement. It still includes the bracketed text for further consideration of possible sanctions. A new section indicates the limits of disqualification and removal procedures to the specific breaches of Article 3-8. A new Draft Note on the implementation and enforcement of the Code has just been released by the UNCITRAL Secretariat.

Both Articles 10 and 11 will surely be the focus of substantial discussions in the forthcoming negotiations. Indeed, the negotiations themselves and their outcome will play an important part for the success and viability of the Code.

 

Next Steps

The second draft of Code of the Conduct advances the drafting process towards a final text, agreeable to all parties. It is a compromise that reflects well the comments received from multiple stakeholders. The upcoming negotiations in June and November 2021 remain key to finalize an approved common text, yet a WGIII agreement on a Code of Conduct seems closer.

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Challenges in Winning and Managing First Appointments

Fri, 2021-05-28 01:21

The Rising Arbitrator’s Challenge Webinar Series, organized by the Rising Arbitrator Initiative (RAI), took place online, on 22 April 2021. The event, with a regional focus on Africa, was the fifth leg of the series, with previous instalments covering North America, South America, Europe and Asia. Under the guidance of Victoria Kigen (Nairobi Centre for International Arbitration) and following opening remarks by Joanne Lau (Allen & Overy), panellists discussed the many challenges faced by young arbitrators – from winning appointments to handling of unique issues posed by remote proceedings. The conference provided a unique platform for experienced practitioners to provide advice to arbitrators navigating their first appointments.

 

Handling Institutional v. Ad Hoc Arbitrations

Abayomi Okubote (Olaniwun Ajayi LP; Africa Arbitration Academy) kicked off the conference by reflecting on the state of the arbitration market and setting out the backdrop for young arbitrators to consider in preparing for and winning their first appointments. He presented data on the global value of disputes handled by institutions (USD 36 billion for the ICC, USD 8.2 billion for the ICDR, USD 8.1 billion for the SIAC, USD 6.5 billion for the LCIA, and USD 6.3 billion for the HKIAC) and acknowledged the difficulty in ascertaining the portion of the market covered by ad hoc arbitration. The panellists emphasized the competitiveness of the market and difficulty in winning first appointments (whether it be by institutions or by the parties themselves), backed up by data from the ICC showing an increase in the percentage of repeat appointments during the past years. Against this backdrop, attendees were reminded of the necessity, in addition to the development of their legal expertise and substantive knowhow, of honing and developing commercial sense and getting involved early on (with work as registrar or secretary to a tribunal) to gain experience and build a network.

 

Dealing With Inexperienced Counsel and Non-Participating Respondents

Young arbitrators that have managed to secure an appointment as arbitrator should ensure that they are substantively prepared to handle the dispute within the framework agreed by the parties. However, as Kananu Mutea (Gikera & Vadgama) pointed out, they can never be fully prepared for the challenges posed by inexperienced parties. Various issues may arise, ranging from considerations of maintaining one’s impartiality while assisting the parties and giving them enough specialized attention to ensure that their due process rights are not infringed due to their lack of mastery of the arbitral process. Considering how their actions would be judged in the event of future proceedings to set aside the award should provide the arbitrator with a barometer regarding the suitability of their actions. Circumstances are key – procedures must be adapted to the particular circumstances of the parties and there is no one-size fits all solution to most issues that arise during the course of the proceedings, but arbitrators should approach these challenges through the prism of fairness and impartiality.

 

The Challenges of Organizing Remote Proceedings

The young arbitrator’s challenge in managing a first arbitration is further complicated these days by issues surrounding remote proceedings. Arbitrators must first consider whether they should proceed remotely at all, before considering the form that such remote proceedings will take. As discussed by Isaiah Bozimo (Broderick Bozimo & Company), from a legal perspective, the arbitrator must consider whether the parties have agreed to proceed remotely and whether there are any restrictions related to remote proceedings derived from the rules applicable to the procedure. If the decision is taken to proceed remotely, the arbitrator must then deal with certain technological and practical considerations. Technological considerations range from the number of screens needed to effectively conduct the proceedings, appropriate video-conference platform, managing trial-runs and back-up options etc. Practical considerations abound as well, including privacy and security concerns, questions related to the protection against witness tampering, designing rules for use of audio and visual set ups (Will all parties be on screen at the same time? Will parties be on mute and who will have the ability to unmute participants?). Suffice to say that the introduction of remote proceedings along with the lack of, for the time being, standard procedures, requires the arbitrator to make a lot of decisions regarding the conduct of the proceedings and adds to the young arbitrator’s plate a whole host of issues to which young arbitrators must be prepared to respond.

 

The nature of the questions raised during the subsequent Q&As – ranging from interrogations regarding the potentiality of witness tampering in the context of remote proceeding, to ensuring the authenticity of documents relied upon by the parties – showed the keen interest of attendees in learning about concrete solutions with respect to legal, technological, and practical issues, which may arise during arbitral proceedings.

Overall, the Rising Arbitrator’s Challenge Webinar Series provided a unique opportunity for young appointees to gain insight into how experienced arbitrators successfully manage to obtain appointments and overcome difficult situations, and the panel’s comments were a timely reminder to be proactive, creative, while always maintaining high ethical and professional standards.

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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 87, Issue 2 (May 2021)

Thu, 2021-05-27 05:00

On Arbitrobots or Robotration

There has been considerable discussion lately on the role that Artificial Intelligence (AI) may play in international arbitration (IA) in the future. While there are some interesting, indeed exciting, prospects of AI’s potential contribution to IA, there also exists a degree of hyperbole in what is predicted. Information technology has already been used for the management of big data in international arbitration, including for example, of data concerning production of documents and conflicts of interest. But this is not AI; this is information technology on the management of large data. AI entails a dynamic process whereby intelligent software aims to identify patterns with a view to learning how to mimic human critical thinking. This evolutionary process is what distinguishes AI from ordinary computer programmes of the management of large data.

In this context, AI is predicted to become relevant in a number of arbitration related tasks and more crucially in decision prediction and decision making. The use of AI in decision prediction is already here, with the development of software which (apparently) can approximate the process of decision making and eventually predict the outcome of arbitration disputes.

But the use of AI in decision making is a quite different discussion. In his article, published in this issue, Professor Henk Snijders makes a powerful case against human decision making being replaced by robotic decision making. It is easy to brand concerns on the role of AI in IA as technophobic or regressive. But Professor Snijders is right to ask questions on this important issue.

If I may, I will add mine. AI systems are already being relied upon in various fields of human life to reach the ‘optimum’ decision on the basis of existing pool of data. The concept of ‘optimum’ decision in some fields of human life is straight- forward. In medicine, for example, the ‘optimum’ decision will be the decision which identifies the course of treatment which is more likely to cure or save the patient’s life. However, in law the concept of an ‘optimum’ decision is less clear. ‘Optimum’ for whom? The claimant, the respondent, the society, the idea of justice more generally? Not easy to say, of course. Even if we substitute the idea of ‘optimum’ decision with that of the ‘right’ decision, we will end up with the same sort of difficulties. As we all know, the law is notoriously indeterminate, and it often speaks to various interpretations all of which can be sustainable.

This is not to say that AI is, as a matter of principle, unfit to substitute human decision-making in legal adjudication including in arbitration. By contrast, this is to suggest that if we are serious about developing a system of legitimate AI decision making (in the near or distant future), we first need to be able to agree on what exactly will be the aim and quality of the outcome of this process.

* * *

We are happy to report that the latest issue of Arbitration is now available and includes the following:

 

ARTICLES

 

Renato Stephan Grion & Thiago Del Pozzo Zanelato, Historical Aspects of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Perspectives on the Resolution of International Commercial Disputes

The present work aims at analysing the role of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in the development of international  commercial arbitration as the most suitable method for resolving international commercial disputes. In doing so, it focuses on the historical background of the Convention, which was preceded by the ‘Geneva Treaties’, its drafting history and the debate that lead to its current wording. Moreover, it analyses the current use, as well as future perspectives of the New York Convention and international commercial dispute resolution. This creates the basis to comprehend the Convention’s current application and impacts, as well as future perspectives for international disputes settlement. For instance, the possible development brought by the recent approval of conventions on the fields of mediation and court decisions may very well indicate a trend towards the circulation of international court decisions and settlements, in the footsteps laid by the New York Convention.

 

Caroline Kenny, A Comparison of Singapore and Hong Kong’s Third-Party Funding Regimes to England and Australia

Singapore and Hong Kong have both recently reformed their international arbitration statutes to permit third-party funding of international arbitration, albeit subject to regulation. Meanwhile, the United Kingdom and Australia have operated as mature third-party litigation funding markets for many years with little regulation. This article considers the historical objections to third-party funding and compares the regulatory framework for third-party funding in England and Australia to Hong Kong and Singapore. It also examines relevant provisions in the rules of the major arbitral institutions in each of these jurisdictions. It concludes that Singapore and Hong Kong have proceeded cautiously, preferring greater regulation for third-party funding than England and Australia. This is a welcome development for an industry often thought to profit too generously at the expense of funded clients.

 

Faisal Gbadegbe, African Continental Free Trade Area: Forging
a New Investment Dispute Settlement Model

Without doubt, the Agreement establishing the African Continental Free Trade Area (AfCFTA) has the potential of projecting the new model of what the future of investment dispute settlement should look like. The author, capitalises on the unique timing of the establishment of the AfCFTA as well as the structure of the Agreement and delves into how forward looking the AfCFTA is, the history of the current investor state dispute settlement system, its flaws, how states are currently mitigating the flaws and proposes a new model for the future of investment dispute settlement that may be brought to life by the AfCFTA.

 

Ihab Amro, The Use of Online Mediation in the Resolution of Civil and Commercial Disputes in Theory and in Practice

The current Coronavirus pandemic shows, and possibly proves, that the use of online techniques for solving disputes arising out of both civil and commercial transactions is useful in practice. The pandemic crisis dictates using online dispute resolution (ODR) techniques, including online mediation, for facing both the legal and the practical challenges resulting from the absence of the physical meeting between parties, counsels, and mediators. This article mainly deals with online mediation as an ODR technique because of its practical importance, on the one hand, and because of the increasing importance of electronic commerce (e-commerce) transactions as an integral part of the digital economy and the need to solve any disputes that may arise between consumers and traders to protect the consumer as a weaker party vis-à-vis the trader. This article highlights online mediation from both domestic and international perspectives, focusing on the pertinent legislations and the best practices of online mediation, including provisions of various legislations, and practical examples from different jurisdictions that support the main hypothesis. This article concludes with findings regarding the main salient issues of the topic as well as with pertinent recommendations for a better understanding of state-of-the-art developments of online mediation at the legislative level; i.e., provisions that might be considered in the future for improving the legal framework of online dispute resolution generally, and online mediation in particular, either at the national level or at the international level, i.e., de lege ferenda as opposed to de lege lata.

 

Henk Snijders, Arbitration and AI, from Arbitration to ‘Robotration’ and from Human Arbitrator to Robot

This piece considers the interplay between arbitration and artificial intelligence (AI). It includes a general overview of the applicability of AI to arbitration proceedings. It questions the development from arbitration to ‘robotration’ and from human arbitrator to robot arbitrator. The author defines AI and focusses on the opportunities of its application in legal practice and in arbitration in particular. He acknowledges that Al does play an important and justified role in arbitration. It is impossible to imagine legal practice without legal tech nowadays and it will undoubtedly become increasingly sophisticated and helpful in the future; we all should be eager to participate in this process. However, by its nature, AI cannot decide law cases properly, as is argued by the author in a step-by-step analysis of the legal decision-making process in detail. This also applies to so-called ‘simple cases’. The author warns that cases can rarely be qualified in advance as being ‘simple’. Even dealing with default cases, for example, can be a delicate and complex matter: many technical legal issues may arise, especially in an international setting, and these require particular attention from a judge or arbitrator, sometimes even sua sponte. The detailed step-by-step analysis of the legal decision-making process in this article underlines that a judge or arbitrator never should be replaced by a robot, not even in simple cases.

 

Allison Goh, Framework for the Resolution of Disputes Under the Belt and Road Initiative

This article proposes a decision-making framework for the selection of a dispute resolution mechanism within the context of Belt and Road Initiative (BRI) projects. While arbitration remains the default choice for the resolution of international disputes, there is increased appetite for other mechanisms. Bolstered by the Singapore Convention on Mediation, the use of mediation, including in hybrid procedures like Med-Arb, is increasing. Dispute boards, such as under the Singapore Infrastructure Dispute-Management Protocol, are also a valued option as they are well-suited for large-scale infrastructure projects, which are the backbone of the BRI. Among international commercial courts, the China International Commercial Courts is likely to become a favourable destination for Chinese parties to site BRI disputes due to its flexibility and status as part of the Supreme People’s Court. Against the myriad of options available to parties, the decision-making framework aims to assist parties to choose an appropriate dispute resolution mechanism for their BRI contract.

 

BOOK REVIEW

Gordon Blanke, DIFC Courts Practice, by Rupert Reed QC & Tom Montagu-Smith QC (eds) (Edward Elgar, 2020)

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Can Pharmaceutical Companies Counter the Waiver of their Patents for COVID-19 Vaccines through Investment Treaty Arbitration?

Wed, 2021-05-26 01:47

Since the COVID-19 outbreak, pharmaceutical companies have engaged in a highly competitive and risky vaccine race. In less than 10 months from the declaration of the global pandemic, the vaccine developed by Pfizer-BioNTech received its first regulatory approval, followed by the success stories of other companies. The swiftness of these results was praised as “unprecedented” and “nothing short of miraculous”.

Despite this head start, the global process of vaccination is lagging due to multiple logistical, economic and societal obstacles, as the recurring waves of the pandemic continue to rage in many regions of the world. India and South Africa, being among the most severely affected countries, are currently leading a powerful campaign for a waiver of intellectual property protections with a view to allowing a wider access to the much-needed COVID-19 vaccines. After gaining support from more than 100 States, the campaign prompted the WTO to recommend a waiver of obligations under various sections of the TRIPS Agreement, which would otherwise be applicable to WTO Member States. By far the most consequential is the proposed waiver of Section 5, which envisages protections for patents, including the patent-holders’ right to prevent the unauthorized use of their patented technologies. Most recently, President Biden of the US threw his support behind the waiver initiative, sending the shares of the vaccine developers plummeting. Pharmaceutical companies as well as many European countries have criticized the initiative as counterproductive and disincentivizing for future research and development.

In this post, I analyze whether the pharmaceutical companies that have developed COVID-19 vaccines (“Vaccine Developers”) may have an actionable claim under international investment agreements (“IIAs”) against States waiving intellectual property rights over such vaccines. More specifically, I examine whether the Vaccine Developers may face jurisdictional and other threshold obstacles in pursuing their investment claims, and whether they may be entitled to compensation under the substantive standards of protection. The aim is to identify and offer a general overview of the principal legal issues, it being understood that the analysis may differ depending on the language of the applicable IIA, the circumstances of a specific case, and the final shape that the patent waiver initiative may take in different jurisdictions.

 

COVID-19 Patents as an Investment

A threshold jurisdictional issue that the Vaccine Developers will face in investment treaty arbitration is whether they have made an investment on the territory of the States waiving their intellectual property protections. Many IIAs expressly include intellectual property rights as a possible form of an investment. However, some developing States that currently call for the patent waiver have yet to register the patents of the Vaccine Developers. Where this is the case, the Vaccine Developers may face a jurisdictional obstacle resulting from not having an asset that exists under the law of the respondent State. As a rule, IIAs protect existing investments and rarely guarantee the right to establish an investment. Therefore, the Vaccine Developers may find it difficult to prove that the IIA applies if the respondent State has not registered the patent at issue.

Even where the State has registered the relevant patents, the Vaccine Developers may need to show that such patents meet the ordinary characteristics of an investment as established in arbitral case law. For ICSID cases in particular, this may require proof of:  (i) a contribution of capital or other resources, (ii) an investment of a certain duration, and (iii) an assumption of risk. The requirement for a contribution of capital or other resources may prove particularly problematic. While the Vaccine Developers have undoubtedly invested substantial resources in the States where they developed the vaccines, they have not done so on the territory of many developing States where they merely market the vaccines. The registration of a patent without more may not therefore qualify as an investment, especially where the requirements of Article 25 of the ICSID Convention apply in addition to the definition of investment contained in the applicable IIA.

The analysis may differ if, in addition to the registered patent, the Vaccine Developer has other assets and interests in a given State. In particular, if the Vaccine Developer has an existing manufacturing plant, distribution facility or other established presence on the territory of the respondent State (such as for instance Pfizer’s plants in India, or J&J’s plants in China), the patent may qualify as part of the existing overall investment and may come under the protection of the applicable IIA. In such a case, even if the respondent State has refused to register the relevant patent, such refusal may itself be impugned as a possible unfair treatment of the existing investment.

 

Intellectual Property Exceptions

Some IIAs, such as those based on the Model US BIT, contain an exception from the States’ obligation to provide compensation for expropriation in respect of the compulsory licensing of intellectual property. Some more recent IIAs also include a provision according to which limitations imposed on intellectual property rights that are consistent with the TRIPS Agreement do not constitute an expropriation (See, Article 8.12.6 CETA).

The patent waiver initiative may at least partly fall under such exceptions, should they be present in the applicable IIA. However, the exceptions usually apply to the expropriation provision only, and would therefore leave it open for the Vaccine Developers to invoke other standards of protection, such as fair and equitable treatment (“FET”).

 

Right to Regulate

States may argue that, given the exceptional circumstances and the legitimate purpose of protecting public health, the waiver of patent protection constitutes a non-compensable exercise of their sovereign right to regulate. While the aims pursued by the patent waiver initiative may be criticized from a policy perspective, they are likely to meet the criteria for a legitimate public purpose under the FET and expropriation standards, since investment treaty tribunals do not as a rule second-guess the regulators’ policy judgments.

However, having a legitimate public purpose would not necessarily render a measure non-compensable, especially if it deprives the investor of its acquired property rights. The jurisprudence of investment treaty tribunals is not settled on the criteria that distinguish the non-compensable exercise of the right to regulate from compensable expropriation. While the provisions on the right-to-regulate contained in recent IIAs clarify certain questions (See, Annex 8-A CETA), they do not offer a clear test to distinguish between non-compensable regulation and regulatory expropriation. That said, a review of the case law shows that measures that eliminate the investor’s property rights may be exempt from the requirement of compensation in circumstances that fall within two broad groups:

  • First, the obligation to compensate does not apply to generally accepted measures of police powers (such as criminal and tax sanctions, or revocation of licenses and concessions) that enforce existing rules against the investor’s own wrongdoings.
  • Second, no compensation may be required for regulatory measures that abate threats that the investor’s activities pose to public health, environment or public order, such as production or commercialization of harmful substances.

The patent waiver initiative does not appear to fall under either of these two categories. It does not seem designed to sanction the Vaccine Developers for their own wrongdoing. Nor does it appear to abate a threat to public health that emanates from the conduct of the Vaccine Developers. Thus, while States may have a sovereign right to waive the patents in order to tackle the pandemic, there appears to be no obvious justification that would allow them to do so without compensating the Vaccine Developers for their waived property interests.

 

Substantive Standards and Compensation

The two main substantive standards of protection that are likely to apply to the patent waiver initiative are expropriation and FET.

Patents are an intellectual property interest. The waiver initiative implies the interference with one of the major attributes of that proprietary interest, i.e. the patent-holders’ right to exclude others from unauthorized use of their technology. If the waiver, even if temporary, results in a substantial diminution of the value of the patent, it will likely qualify as an indirect expropriation and, depending on the formulation of the applicable IIA, will call for compensation in the amount of the fair market value of the patent. If the waiving States were to offer compensation falling short of this standard, the Vaccine Developers could seek to recover full compensation under the governing IIAs. In this respect, it is worth mentioning that some States have partly financed the development of the vaccines with multiple conditions that affect their free marketability. This factor may be relevant at least to the quantification of the value of the relevant patents.

If the diminution of the value of the patent is not substantial, e.g. because it retains a considerable portion of its value after the waiver is lifted, the Vaccine Developer may seek to recover its loss under the FET standard. In particular, it may argue that the waiver constitutes an interference with its legitimate expectations, in which case it will likely need to demonstrate that it received specific assurances of stability of the legal framework from the State. It may also argue that the patent waiver is a disproportionate measure, not warranted by the pursued goal. In either case, however, the prospect of recovering the loss is less certain than under the expropriation standard.

*   *   *

Overall, the patent waiver initiative may give rise to claims under the expropriation standard, and to a lesser degree, under the FET standard. However, the success of such claims may depend on whether the Vaccine Developer is able to demonstrate that it has made an investment on the territory of the waiving State in addition to the registered patent. Moreover, the compulsory patent licensing exceptions contained in some IIAs may (partly) exempt the States from liability. In turn, the States may find it difficult to demonstrate that the proposed waiver of the intellectual property rights, while justified in light of the public health objective that it pursues, constitutes a non-compensable measure.

The opinions expressed in this blog are those of the author alone and do not represent the views of his employers or other members of his firm.

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AG Szpunar’s Opinion in Case C-741/19: Preparing the End of Intra-EU Investment Arbitration Under the Energy Charter Treaty?

Tue, 2021-05-25 01:00

The investor-State dispute settlement (ISDS) mechanism provided by Art. 26 (2) (c) of the Energy Charter Treaty (ECT) is highly relevant to the protection of intra-EU investments.1)In 2018, about 45 per cent of all treaty-based intra-EU investment arbitrations were brought pursuant to the ECT. See UNCTAD, Fact Sheet on Intra-European Union Investor-State Arbitration Cases, IIA Issue Note 3.2018, p. 1. jQuery('#footnote_plugin_tooltip_37433_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37433_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  In its widely discussed landmark Achmea judgment, the Court of Justice of the European Union (CJEU) found that the ISDS clause contained in the Dutch-Slovakian bilateral investment treaty (BIT) was incompatible with European Union (EU) law. As recently confirmed by the Frankfurt Higher Regional Court in Raiffeisen v. Croatia, the Achmea ruling is not specific to the treaty at issue but applies to all intra-EU BITs.

This post addresses the practically important question which remains unanswered: whether the Achmea judgment is also applicable to ISDS proceedings under Art. 26 ECT. The legal consequences would be severe for pending and future ECT investment claims especially with respect to the enforceability of awards.

On 3 March 2021, Advocate-General Szpunar (AG) delivered a remarkable opinion in CJEU case C-741/19 which contributes to this controversy. The AG concludes that Achmea should be extended to intra-EU ECT arbitration. In the following, we will provide an analysis of the opinion (I.) and give an outlook on what to expect from future developments of intra-EU investment arbitration (II.).

 

I. Analysis of the Szpunar Opinion in Case C-741/19

An Obiter Dictum Opinion

Considering the circumstances of the preliminary ruling procedure, the AG’s findings on Art. 26 ECT were unexpected. The case concerns the setting aside of an ECT investment arbitration award before the Paris Court of Appeal. The underlying dispute between a Ukrainian investor and the Republic of Moldova relates to the purchase of electricity. In 2013, the Paris-seated tribunal in Komstroy (formerly known as Energoalians) v. Moldova rendered an UNCITRAL award in favour of the investor. Subsequently, the respondent State filed an action to set aside the award at the seat of arbitration.

The Paris Court of Appeal referred three questions to the CJEU as to whether the claimant had a protected investment under Art. 26 (1) ECT. After acknowledging that neither the investor’s home State nor the concerned host State are EU Member States, the AG asked whether the CJEU was competent to rule on the matter (paras. 30 et seq.).

In line with the Hermès case (C 53/96, EU:C:1998:292, para. 32), such a competence would exist if the relevant provision was potentially applicable in an intra-EU context (para. 37). Whether Art. 26 ECT is potentially applicable within the Union would depend, however, on its compatibility with EU law (para. 47). Accordingly, the CJEU would only be competent to render a preliminary ruling if Art. 26 ECT was compatible with EU law. Otherwise, no legitimate interest to rule on the notion of investment under Art. 26 (1) ECT in a dispute between two non-EU parties would exist. Thus, the CJEU should seize the opportunity to clarify whether its Achmea ruling was applicable to ISDS under Art. 26 ECT (para. 48).

The analysis provided by the AG is remarkable and clearly motivated by its outcome. In view of legal certainty, great interest in clarifying the matter indeed exists. Nevertheless, the AG’s reasoning is flawed. It suggests that any ruling on the notion of investment under Art. 26 (1) ECT would be moot if intra-EU ECT arbitration under Art. 26 (2) (c) ECT was incompatible with EU law. That is simply not the case, as Art. 26 (2) (a) ECT provides for the competence of the national courts of the host State. Any dispute brought before a national court under Art. 26 (2) (a) ECT requires an investment in the sense of Art. 26 (1) ECT. The notion of investment is therefore independent from the ISDS mechanism. Consequently, as far as the compatibility between Art. 26 ECT and EU law is concerned (paras. 46-90), the opinion’s findings are beyond the scope of the preliminary ruling procedure and were made obiter dictum. The CJEU is therefore not competent to rule in that regard.

 

The Opinion’s Main Findings Regarding Intra-EU ECT Arbitration

By applying the reasoning developed by the CJEU in Achmea, AG Szpunar concluded that intra-EU ECT arbitration was incompatible with EU law (para. 79). He opined that the ISDS mechanisms provided by the BIT at issue in Achmea and the ECT were without a doubt comparable (para. 73). Corresponding submissions to the Court were made by the EU Commission and the Governments of France, Germany, Spain, Italy, the Netherlands, and Poland (para. 72).

First, the AG emphasised that, like the ISDS clause in Achmea, Art. 26 ECT allows for the submission of disputes to arbitration that may relate to the interpretation of EU law. According to Art. 26 (6) ECT, the tribunal shall decide disputed issues in accordance with the ECT and applicable rules and principles of international law. As the CJEU elucidated in Achmea, EU law is a part of such rules of international law since it must be regarded on a twofold basis: ‘as forming part of the law in force in every Member State and as deriving from an international agreement between the Member States’ (Achmea judgment, para. 41). On this basis, the AG concluded that the risk of ECT tribunals interpreting or applying EU law existed (paras. 74-75).

Second, the AG assessed that a tribunal established pursuant to Art. 26 ECT does not form part of the EU’s court system (para.76-78). Therefore, such a tribunal is not entitled to seek the CJEU’s guidance on matters of EU law and, thus, it constitutes a threat to the principle of autonomy of EU law (para. 79).

Then, the AG considered whether the Achmea ruling must be distinguished from intra-EU ECT arbitration because the EU itself is a party to the ECT (paras. 81 et seq.). On this basis, arbitral tribunals have so far declined all jurisdictional objections related to Achmea. The AG argued that in principle, the EU could be subject to decisions of a court established by an international agreement, provided that the autonomy of the EU law was preserved. But since ISDS pursuant to Art. 26 ECT poses such a threat to the EU legal order, the Union being a party to the treaty cannot remedy the incompatibility with EU law (para. 83).

Finally, AG Szpunar considered the submissions made by the Hungarian, Finnish, and Swedish government. Instead of Achmea, CJEU Opinion 1/17 should apply to the assessment of Art. 26 ECT (para. 84). The AG dismissed these arguments by recalling that Opinion 1/17 concerns ISDS between the EU and third countries, not intra-EU ISDS proceedings (para.88).

 

Evaluation of the Findings

On the substance, we agree with the AG’s conclusion. As we have argued elsewhere, the Achmea ruling is indeed transposable to intra-EU ECT arbitration. The AG’s opinion, however, remains vague as to why Achmea cannot be distinguished by the ECT’s multilateral nature. As recalled by the EU Commission and the German Government (para. 41), the ISDS mechanism under Art. 26 ECT is of bilateral nature and thus perfectly comparable to ISDS clauses contained in intra-EU BITs.

In principle, any multilateral treaty can be divided into bundles of bilateral relationships, provided that the violation of an obligation does not impair the common interest of all States involved. Imagine a situation in which host State A refuses to arbitrate against investors from State B, but consents to proceedings against investors from State C. State A violates Art. 26  ECT, but this only affects the bilateral relationship between States A and B, whereas the interests of State C remain untouched. Therefore, the multilateral nature of the ECT does not hinder the transferability of Achmea to intra-EU ECT arbitration.

 

II. Consequences for Intra-EU Investment Arbitrations

In view of its lack of competence, the CJEU should not address the issue of intra-EU ECT arbitration in a preliminary ruling procedure which is limited to the notion of investment under Art. 26 (1) ECT. Since the issue is far too important to be clarified by way of obiter dictum, the Court should instead use the Government of Belgium’s request to rule on the matter.

We expect that the CJEU will transpose its Achmea ruling to the ECT. The incompatibility of intra-EU investment treaty arbitration with EU law must then be acknowledged as a matter of principle. As we have analysed elsewhere, the practical consequences will be manifold. On the one hand, ICSID tribunals and non-ICSID tribunals seated outside of the EU will remain competent to settle intra-EU investment disputes. Their awards, however, will be unenforceable, at least within the EU. On the other hand, non-ICSID tribunals seated within the EU will no longer be competent to settle such disputes. Should they nevertheless render awards in violation of the law of the seat (lex arbitri), such awards will be unenforceable within and outside of the EU.

Is this the end of intra-EU investment arbitration? Maybe not yet, as a recent Opinion delivered by AG Kokott suggests (discussed here). There are indeed good reasons for not applying Achmea to arbitration agreements directly concluded between a State and an investor. Thus, contract-based investment arbitration might continue to be part of the European legal landscape.

References[+]

↑1 In 2018, about 45 per cent of all treaty-based intra-EU investment arbitrations were brought pursuant to the ECT. See UNCTAD, Fact Sheet on Intra-European Union Investor-State Arbitration Cases, IIA Issue Note 3.2018, p. 1. function footnote_expand_reference_container_37433_30() { jQuery('#footnote_references_container_37433_30').show(); jQuery('#footnote_reference_container_collapse_button_37433_30').text('−'); } function footnote_collapse_reference_container_37433_30() { jQuery('#footnote_references_container_37433_30').hide(); jQuery('#footnote_reference_container_collapse_button_37433_30').text('+'); } function footnote_expand_collapse_reference_container_37433_30() { if (jQuery('#footnote_references_container_37433_30').is(':hidden')) { footnote_expand_reference_container_37433_30(); } else { footnote_collapse_reference_container_37433_30(); } } function footnote_moveToAnchor_37433_30(p_str_TargetID) { footnote_expand_reference_container_37433_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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